How to retire comfortably

Start to save early in life

Save some money each payday and when you have enough saved for a rainy day, invest the rest. Investing even a small amount of money early in life will compound into a large amount latter. This is because the magic of compound interest (where interest is paid on the interest previously paid, as well as investment contributions) has a powerful effect on the growth of your portfolio.

A portfolio is a collection of cash, stocks and bonds.

Cash is the money you saved for a rainy day, which inevitably comes to everyone. It is usually held in savings accounts, money market accounts, checking accounts, etc. Cash is anything liquid, meaning you can spend it immediately if necessary.

Stocks are certificates issued by businesses in return for cash, which they use to grow their business. Stock holders own part of the business in proportion to the number of stock certificates they own. Dividends are also paid to the holders of stock certificates to compensate them for investing in the business.

Bonds are certificates issued by businesses or governments that wish to borrow money (cash) to fund capital projects. Interest is paid quarterly to holders of the bond certificates (lenders) for the use of their money. At the end of a specified time the borrowed money is repaid to the lender.

Inflation is a process that erodes the future value of cash, stocks and bonds.
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