Last week, I wrote a piece regarding what you should do if you won the $700 million Powerball jackpot. Of course, that only impacted one person in Massachusetts.
While the rest of us didn’t win a net $300-400 million, all is not lost. You can still set up a nice retirement for yourselves. In fact, the process for doing so isn’t all that different than for the lady who did win last week’s jackpot. You just need to get the basics right. What are the basics, you ask?
There seems to be a multitude of different variables to consider when answering “getting the basics right,” but once done, it’s okay if some of the details are a little fuzzy. I don’t mean to minimize the complexity involved with saving for retirement and investing in general. Well, maybe I do intend to minimize that somewhat. It just isn’t that complex.
When you read opinions about how to invest for retirement, you see lots of tactics discussed such as: Invest for the long-term without market timing; invest globally; be contrarian; allocate to underperforming sectors. Though these tactics are all sensible, they don’t represent the “big picture,” which consists of only three basic elements to a successful financial retirement plan:
1. An adequate savings rate
2. Minimizing truly self-destructive behavior, and
3. Living below your means (a.k.a. “spend significantly less
than you make”)
That’s the “big picture.” It’s not more complicated than that. Choosing the right fund management approach is important. I happen to like Dimensional Fund Advisors’ approach. Other financial advisors are attracted to any one of several other approaches. There’s room for a wide variety of approaches to investing—aggressively, conservatively and everything in between. But if you manage the three fundamentals cited above, you can’t go wrong.
The first and third basic element are self-evident; the middle criterion—minimizing self-destructive behavior—is a little more abstract. To me, that suggests things like chasing the latest investment fad, showing a lack of “market courage,” paying excessive fees, and excessively trading your positions. Yes, I recognize that trading may be part of one of those strategies that works for some people and not for others. It may be fair to re-characterize that middle criterion as minimizing undisciplined behavior. Thus, if your strategy calls for active investment decisions, you minimize self-destructive behavior if you operate according to a clear set of rules rather than on the basis of impulses such as fear or greed or the most recent article you’ve read.
Good luck and remember:
“It’s not how much money you make. It’s how much money you keep and how hard it works for you!”
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.