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The 10 Commandments of Retirement Investing: Part II

The final five of 10 important guidelines for long-term planning


After spending some time yesterday to discuss the first part of an abbreviated form of Richard C. Young’s “10 Commandments of Investing,” let’s take a look at the final five commandments and how they can help prepare investors for retirement.

#6: Automatic Withdrawal Programs

Young is very specific in this commandment, suggesting that retirees take out 1% of net portfolio assets every quarter. The vast majority of retirement “letters” and advisory services I’ve read suggest a 4% figure, so clearly we are looking at a more conservative number in this commandment.

It’s tough to make a cut-and-dried number for withdrawals, considering there are as many variables as there are options. Diversified retirement portfolios may contain assets such as real estate and equity partnerships that are difficult to liquidate, especially on a quarterly basis.

Traditional and Roth IRAs have their own sets of withdrawal rules — regular IRAs even have required minimum distributions — so understanding those in the scheme of your other investments is important.

While 1% quarterly is a good guide, as with any aspect of retirement planning, withdrawals should be made based on your monetary needs and your investment time horizon.

#7: Avoid Investment Predictions

Don’t assume that the broader markets will go up in a straight line forever, and certainly don’t plan your retirement on that assumption. Or, more shortly, don’t “set it and forget it.”

Instead, make (and keep up with) a plan using some analytical tools — which can be as simple as an Excel spreadsheet — that provides you with the actual inflows from dividends, interest and any other investments, and keep that spreadsheet up to date on your portfolio mix.

That same spreadsheet can be a valuable tool to help you decide when to sell down asset classes (for balance sake, not necessarily for cash flow) that may be out of balance.

#8: Full Faith and Credit Investing

I’m taking my own swing at this one, as the guidebook is unavailable, but investing at least a portion of your hard-earned monies in Treasury notes — even at rates below inflation — is sensible. After all, despite what sometimes appears to be fiscal gridlock, the U.S. still is the most stable economy in the world, and — for now, at least — it has the safest debt, too.

Companies like Vanguard offer the full range of U.S. government bond funds, ranging from  Short Term Treasury (MUTF:VFISX) to Long Term Treasury (MUTF:VUSTX) average maturities, both invested at least 80% in government-backed securities. Or you could invest in exchange-traded funds like the iShares Barclays 20+ Year Treasury Bond (NYSE:TLT), which holds Treasury notes with remaining maturities of 20 or more years. Or you can eschew funds altogether and buy government debt directly through the U.S. Treasury.

Full faith and credit can include a fund or investment vehicle packed with solid-rated corporate credits, too. For instance, there’s the iBoxx $ Investment Grade Corporate Bond Fund (NYSE:LQD) ETF, which carries debt from companies like AT&T (NYSE:T) and Walmart (NYSE:WMT).

#9: Avoid In-and-Out Trading

“Day-trading” was all the rage back in the 1990’s when, as my brother used to say, “You could stuff stocks into a mule and it would appreciate.”

My friends, those days are over.

The market’s sophistication isn’t just based on intellectual capacity; it is now computers, and programs and algorithms. You probably have the smarts, but the game is rigged against you. Building a retirement from your den or beach house is tricky, risky business.

Be active, of course. Your portfolio should be a living, breathing thing, so it’s OK to occasionally take a quick flier on a stock to get a nice bump in your portfolio. But don’t do it often, and only allocate a small amount of your portfolio to such moves so you don’t jeopardize your nest egg. Leave the daily hunt for quick winners to the professionals.

#10: Have a Plan and Patience

So many factors emerge on a day-to-day basis that it’s sometimes difficult to see the forest for the trees. But if you make your own road map ahead of time, you can use it when life throws off your GPS.

Of course, a plan isn’t worth anything if you don’t have the patience to see it through.

And patience is important no matter what stage of life you’re in. Obviously, you have plenty of time if you’re starting out small right out of college, but it’s also difficult to condition yourself to think 40, 50 years down the road. Of course, if you’re starting out later in life, big or small, you don’t have as much time to work with — but if you treat 10 or 15 years like 10 or 15 minutes, you’ll find yourself making some rash mistakes.

Start from the beginning: Write it down, hash it out, keep it handy, follow your instincts, and listen to the advice of those you trust. And don’t stop until you’ve reached your goals.

Marc Bastow is an Assistant Editor at As of this writing, he did not hold a position in any of the aforementioned securities. What do you think? Let us know by leaving questions or other comments below.

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