This is not an article to tell you what investments to make. Rather, it explains retirement strategies on how to invest. Here are the concepts often mistaken:
- Don't put all of your assets into fixed income investments. Of all retirement strategies, this one is often violated due to bad advice from untrained financial 'advisors.' In fact, data shows that at least 50% of your funds should always be kept in equities. Not only do the equities grow in value over time, so do their dividends.
- It's far more important to get your investment allocation correct than to focus on specific investment choices. For example, the percentages of your portfolio that you have in domestic stocks, domestic bonds, foreign stocks, foreign bonds, real estate securities, commodities, venture capital, emerging economies, etc. have a much bigger impact on how well your portfolio will do over time than whether you choose to own shares of Nestle of Cadbury.
- There is no 'set it and forget' it retirement strategy to investing. The world changes too much and you will need to make adjustments. However, those adjustments in your allocation should be infrequent—maybe every 3-5 years.
- When you do adjust your allocation, your allocation should be adjusted by purchasing more of what is doing poorly and selling what is doing well (i.e. buy low and sell high). Of course, most investors get this backwards out of fear and have less than satisfactory investment results.# Don't watch the Nightly Business Report or CNBC or read the Wall Street Journal. And especially don't watch 'Kramer.' The hype that the media creates around investing makes you feel that you should buy and sell every day. In fact, several research studies show that the more you trade, the worse your investments perform. Sound retirement strategies call for changes that depend on large secular movement in the financial markets. The famous trader, Jesse Livermore said, 'the money's made in the sittin'.' You will be better off going to Europe for 5 years, not reading the US business news or watching it on TV and returning after your hiatus to decide if any changes are needed.
- Everyone involved with Wall Street will tell you that number 5 above is wrong and will offer you many investment ideas, financial retirement strategies and reasons to make changes in your portfolio (more of these ideas flow around Christmas time when additional commissions are needed for holiday presents).
- Always working at least some hours, having a business, being a partner in a business are all great retirement strategies to generate supplemental retirement income . More importantly, they give you a feeling of control. When all of your income is passive (coming from social security, dividends, interest and other sources you cannot control), you feel more uneasy about your financial situation.
- Don't guess. If you don't like using retirement calculators, then hire someone to do the math. A successful financial retirement is about projections, percentages, gains and losses and if you shy away from this (or don't hire help), the math issues won't go away.