I came across a short commentary about investing for retirement that captures my own investment philosophy and outlook and wanted to share it with you.
Retirement investing requires optimism has this solid advice for individual investors:
"Many times during her formative years I told my daughter, "Life's not fair. Get used to it." Along these lines, each year fewer employers offer defined benefit pension plans.
Not because they hate their employees but because they are no longer willing to assume the investment risk of guaranteeing a defined retirement benefit. Consequently, the investment risk in retirement planning has shifted to employees. Accumulating sufficient assets to fund your golden years is a difficult task — one that is beyond the skill of most people.
Consequently, you must either acquire or hire the knowledge necessary to manage your retirement plan. Life's not fair. Get used to it. . . .
Be an optimist
This is square one, the first rung on the ladder, the initial step of a long journey. Investing for retirement involves placing your financial assets at risk in an environment of uncertainty. If the future frightens you, your emotions will betray you and reduce your chances of success. Without the firm foundation that optimism provides, you will react to the mood swings of other investors and the latest headlines.
The flight of money from stocks to bonds since the recent financial crisis has been well chronicled in the financial media. Fear and pessimism have caused many investors to remain on the sidelines and miss the 100% rebound in domestic stocks since March of 2009. Missing a doubling of stocks will put a big hurt on anyone's retirement planning. . . .
Historically, "safe" options such as money-market funds, government bonds and certificates of deposit have yielded after tax returns barely above inflation. Almost everyone needs stock market returns to build a nest egg that will last through retirement. You need courage to put your assets at risk and optimism that your risk-taking will be rewarded.
The media's 24/7 barrage of bad tidings and other distractions . . . serve to frighten rather than educate. The best way I have found to develop optimism is to study history. It will help you put today's headlines and countdown clocks into historical perspective.
The last century has contained most of the history altering events that we are likely to experience in the future — war and peace, a growing economy, a declining economy, bull and bear markets, inflation and deflation, high and low interest rates and countless other frightening events that now reside on the timeline of things long forgotten. By reading today's headlines instead of history, you're left with the impression that we live in unusual times but each decade is unusual in its own unique way.
Despite the dramatic events that have occurred, the U.S. stock market, as measured by the Standard & Poor’s 500 Index, has yielded a 9.8% annualized rate of return since 1926. Too bad it didn't return 9.8% each year. But there is no easy path to riches on Wall Street. You must be prepared to experience significant and prolonged falls and rises in the value of your stock investments. No one can predict what the market will do next, making protection the only intelligent choice. Diversify, use dollar cost averaging, never stop learning, don't give up and when in doubt always choose return of principal over return on principal. . . .
Hot and cold wars, depressions, inflation, government and corporate corruption have come and gone and we're all still here. The pessimists have always been wrong. Someday they may be right but I'm not holding my breath. If you think America is doomed, good for you. Buy gold and bury it in your backyard. But don't bother telling me about it, I'm too busy helping people create their ideal retirement.
So, hold tight to your optimism. We are well educated free people with access to almost unlimited low cost capital. We will continue to discover, invent, start new businesses, cure diseases and eventually solve today's difficult problems.
The choice is yours — optimism and courage or pessimism and fear. I've made my choice."
I've made my choice too. Long ago, in fact.
So don't worry; be happy.
And if I can help any aspiring DIY investors along the way, I'll be happy to do so.
And with a spirit of long term optimism guided by history and personal experience.
Will there be bumps in the road ahead? Of course, there will be.
But overcoming the stress of the investment ups and downs and other obstacles to a happy and financially secure retirement will prove to have been well worth the effort in the end.