Keep Calm and Carry on Planning for Retirement
by Marc Bastow | February 8, 2013 7:00 am
I’ve spent a lot of time over the past few weeks discussing both near-term and retirement investing with colleagues around the office.
It’s a great conversation to have, but since we’re all at different stages of the retirement spectrum, the information flow has been fast, furious and, well … even overwhelming at times.
In a way, it’s pretty similar to most investors have to go through. People not only have to process what they seek out to learn on a daily basis, but then they’re also bombarded with financial product options and pitches for get-rich quick or retire-a-millionaire schemes.
Much like in other aspects of life, the best thing to do when you’re suffering from information overload? Take a step back, take a deep breath, then see what you can do to simplify, simplify. Here are three things to remember if all the planning and options ahead of you seems too complicated:
- Focus on who you are and what you need. If you’re 21, you have a long time to overcome mistakes, and to learn about which ones to avoid. Long-term might mean five to 10 years for some investments, but 25 to 30 years for others, representing any number of business cycles and broader market swings. That length will help you answer questions concerning your risk tolerance. Should you bail out at the first sign of a pullback? Keep your chips in after a big rally in hopes for more? How long you’re working with will affect how aggressive you can afford to be, and how much of your funds you’ll be aggressive with.
- Real estate is great, but know what you’re getting into. The dream is to buy property on the cheap, fix it up and rent it out to someone for more than your overhead. Of course, if it were that easy, everyone would do it, wouldn’t they? It takes capital to buy even the most distressed property, as well as to keep it up, pay the taxes and repay the money you borrowed for the purchase. In fact, you’ll probably want to plan out another 10% cushion on top of all that to be safe. And how about tenants? Remember, you are now a landlord. Are you comfortable with that? Can you do the necessary duties, or can you pay someone else to act as the landlord? There’s a lot to consider. If you just don’t have the money and the elbow grease to make it happen, don’t do it — you still have the market to play with.
- Futures, swaps, options and the like are best put on the shelf. Sure, all these various hedges have their uses, and if you want to try your hand at day trading, go for it. But investors looking way, way down the road, managing just a handful of buy-and-hold securities, shouldn’t complicate things by playing these game. Hedging is best left to professionals sitting at trading desks in New York or London. And heck, even professionals can screw it up.
At the end of the day, you can get by pretty well on good ol’ stocks and bonds. And while study after study shows that stocks outperform bonds over the long term, a mix of both will help you out when one or the other experiences leaner times.
Not that making the right stock picks is easy, but given the alternatives …
Marc Bastow is an Assistant Editor at InvestorPlace.com.
- even professionals can screw it up: http://ftalphaville.ft.com/2013/01/16/1339782/the-london-whale-an-oral-history/
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