Dear me, what good advice

DEAR younger, better-looking, more cash-strapped version of me,

This is your future self writing, martian-tini in hand, from Branson's new space resort. You see, it might not seem possible today but you get your financial act together. And yes, you rocket past your retirement dreams.

But I remember well how stressed you felt in 2012, so I thought I'd give you a heads-up on how you ultimately prevail.

Cash doesn't cut it

Sure, things got pretty scary on asset markets after 2008's mortgage-induced meltdown. I painfully recall the trauma of watching shares deflate, undulate and then stagnate.

But growth - a more subdued version - does resume.

However, that's not really the point. The point is that you need to hold some growth assets - stocks and property - to fund your retirement.

Sitting in cash might feel less nerve-racking, but of the 6 per cent you can now earn, half is eaten up by inflation and almost the other half by tax.

What you need is a broad spread of growth and income (cash and bond) assets, remembering high-yielding Australian shares can act like both. This is not just so there's potential for your portfolio to increase but also so the next time an asset class tanks, and at some point most will, it doesn't dramatically decrease.

The key is to ensure your asset mix remains appropriate to your risk appetite and age. Do us a favour and progressively invest more safely.

Property isn't the panacea

Hopefully, by now, you've begun to accept an uncomfortable truth - property doesn't always go up, even in Australia.

I recall the 3 per cent national fall in 2011 and also that the performance of suburbs and areas across the country varied quite dramatically. Be aware that if an investment property loses you money each month - because you've negatively geared for the tax breaks - you need a big eventual capital gain to compensate.

Don't forget, either, that your home is one of the most valuable assets you'll own, so you already have a large chunk of cash tied up in real estate.

Regular savings rule

The real secret to investing is not what you earn on savings and investments but how much you can save and invest in the first place.

Because, from my bird's-eye view, I can see just how spectacular compounding really is. The earlier you start, the easier you will succeed.

Start putting $100 a month into an investment, earning even a modest 6 per cent, at age 30 and by 55 you'll have more than $70,000, more than half of it from investment returns.

If you don't start until 40 you'll need to save $240 a month to end up with the same balance - and only $27,000 will be returns.

Wait until 50 and this leaps to $1000 a month - and you'll have to find all but $10,000 of your total. A hundred bucks a month is the equivalent of one less naughty snack or cup of coffee a day.

Grow AND protect

Shoring up your future is just as much about defensive as offensive actions. In other words, get protected.

First, a healthy sense of scepticism is one of the best protections going. Never forget if it seems too good to be true, it is - and could even be a scam.

You don't get higher returns without taking a higher risk. Ever. If you can't take on that risk, don't invest.

Secondly, you need to protect your family and also your most valuable asset: your earning power. Take out life, total and permanent disability and income protection insurance as a minimum - today.

Down with debt

The interest savings from repaying debt are enormous - just as compounding works for you with savings, it sabotages you with debt.

If you let a home loan go full term, you can expect to repay far more than double what you initially borrowed.

So don't. Bear in mind that in the top tax bracket you would need to earn almost 12 per cent on an investment for that to be a smarter strategy than simply paying down debt, based on the average 7.4 per cent variable rate.

But the real power of the strategy is that, without the regular commitments of mortgage and debt repayments, there's much more money with which to reach your lofty goals.

Money is for enjoying

Make your money work for you, not just the other way around. And to stay focused on wealth building, treat yourself along the way.

But don't bother saving for the jet pack. Sure, you can buy them now but landings are a bit hit-and-miss.

Stay financially grounded throughout and the stars are the limit.

Nicole Pedersen-McKinnon is editor of Smart Investor magazine. Follow her on Twitter @NicolePedMcK.