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Investing for Your Future With Online Trading

Investing for retirement might not be on your mind if you are early in your career. However, your early 20s is the ideal time to start saving for retirement to maximize your investing potential. When you are young, it is easy to get distracted by short-term goals and forget about planning for the future. Yet, with some discipline and the rightonline trading tools, you can set yourself up for financial stability in your retirement years. When you use online stock trading for long-term financial planning, there are many things to consider. Here are three basic steps you should take as you work toward saving for the future.

1. Overhaul Your Finances
Before you can start saving for long-term goals, you need a thorough understanding of your current financial situation. First, calculate your total living expenses. Look closely at what you are spending and where. Out of that spending, determine what expenses are needs and which are wants. During this process, you may have to make some tough decisions to alter your spending habits.

After you have a clear picture of where you money is going, you need to decide how much money you are able to put into savings and how much you can put into investments. If you have any debts, work hard to pay these off, as they will pull you down and reduce the amount of money you can start investing. After you have paid off your debts, put the money that was going toward them into your investments. For example, if you pay off your car loan, don't see this as extra money to spend; instead, start putting that money into your investment account.

2. Educate Yourself
There is no one-size-fits-all approach to online stock trading or choosing an online broker. Everyone has different needs, and online trading provides enough versatility that you can chose a route that fits your specific needs. Developing an investment strategy is an important part of stock trading. Have a clear strategy outlined as you start to invest, and to do this you need to learn about which types of investments you should be focusing on – stocks or bonds.

Before you start to invest, educate yourself on which investments are right for you. Your age and projected retirement age will play a large part in what type of investing you should be doing. If you are younger, your investments should be geared toward wealth-accumulating stocks. These stocks have higher earning potential, which of course comes with higher risk, but young workers can afford the tradeoff of bigger risks for higher payoffs with long-term investments.

A typical rule of thumb has been to subtract your age from 100, though as we continue to live longer, most financial experts are now recommending using 110 as a benchmark rather than 100. The difference between your age and the benchmark you use will be the percentage of your investments you should have in stocks. For example, if you are 30 years old, you should have 80% of your investments in the stock market.

3. Choose a Retirement Account
The most popular retirement accounts, 401(k)s and IRAs, are tax advantaged investment accounts. These accounts are set up to help you make the most of your long-term investments by either lowering your taxable income upfront or allowing you to withdraw your money tax-free later. Tax advantaged accounts have restrictions such as contribution limits and a minimum withdrawal age.

The best place to start when you are looking into your retirement plans is to see if your company offers a 401(k) plan with matching contributions. This will be your best option. If your company does not offer a 401(k) plan or you do not qualify for your company plan, look into traditional and Roth IRA accounts available from online brokers or financial institutions.

Saving for retirement can seem like a daunting task, but with the right tools you can find a strategy that is right for you. Before starting, make sure you have a clear picture of your current financial situation, and don't forget to educate yourself on what mix of stocks and bonds you should have in your account. Lastly, choose the type of retirement account that is right for you, starting with a company 401(k) if it is available.

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