As a financial advisor, I would love to have a nickel for every time someone asked me “What’s the right way to invest and save for retirement?” But I don’t—my advice in this case is totally free.
There are literally hundreds of different variables to consider when answering that question for any person’s specific situation or goal. However, if you are clear on the “basics,” it’s okay to be somewhat fuzzy on some details. Now, I don’t mean to downplay the complexity involved with saving for retirement and investing in general. Well…maybe I do intend to minimize it somewhat. That’s why they call it “basics.”
When you read published opinions about the basics of investing for retirement, you see many tactics discussed, such as investing for the long term without market timing; investing globally; being contrarian; and allocating to underperforming sectors. Though these examples of tactics are all sensible, they don’t represent the big picture when it comes to basics of investing for retirement. There are only three very basic elements, and it isn’t rocket science.
Follow these three rules, and you’ll be able to save for retirement.
The Most Important Elements to Financial Plan Success
The most important elements to financial plan success are:
- Establishing an adequate savings rate;
- Living below your means; and
- Minimizing truly self-destructive behavior.
That’s it—it’s that simple. That’s the “big picture” about which too many lose sight. The first and second points seem self-evident: establish an adequate savings rate based on what your current debts and commitments are and don’t spend more than you earn.
The Third Step Is a Bit More Abstract
But the third criterion (minimize self-destructive behavior) is admittedly a bit more abstract. In my opinion, it speaks to behavioral issues like chasing the latest investment fad, a lack of “market courage,” paying excessive fees, and excessively trading your positions. Yes, I recognize that trading may be part of one of the investment strategies that works for some people and not for others.
So, it may be fair to put a finer point on the third basic element and re-characterize it as minimizing undisciplined behavior. Thus, if your strategy calls for active investment decisions, you can be considered non-self-destructive. This means you operate using a clear set of rules and objectives, rather than investing on impulses driven by fear or greed from the most recent article you’ve read on the internet.
My basics for investing for retirement are:
- Start saving early in your career, and save often
- Live within your means
- Implement a disciplined strategy that works for you and not against you
Here’s an excellent quote from Warren Buffet that I think all of us should know:
“It’s not how much money you make. It’s how much money you keep and how hard it works for you!”
I invite you to drop me a line if you have any questions or just to let me know if you have another basic element for investing for retirement.
This information is not intended to provide specific tax, legal or business advice and may not be relied upon for the purpose of avoiding any tax penalties. Lewer Financial Advisors is a multi-state registered investment advisor domiciled in Missouri. Lewer Financial Advisors is a member of the Lewer group of companies.