Saturday, January 19, 2013

What Young People Underestimate ... Retirement Planning Tips

Young people become old people. No news there. However, old people realize how quickly life goes by, and that's a surprise awaiting younger folks.

As an example, I became old much faster than I ever would have dreamed possible, and most of my "elderly" friends say the same thing.

Once when asked about the biggest surprise in his life, Bill Graham said it was life's brevity.

And so it is with saving and investing for our retirement years. When we're young, we don't think it pertains to us. But that's wrong. So young folks, take note. And old folks, encourage the young folks to do so in a serious way.

The time to begin saving and investing is at as early an age as possible. There's no time like the present, in other words.

Although we all hope and expect to live long enough to retire and then live comfortably, far too many of us don't plan, save and invest properly for our financial future so we can in fact do just that.

11 retirement don'ts for 2013 has some good and some not-so-good advice. The not-so-good relates to not paying for financial advisers and managers. But first, let's see what the financial advisor has to say:

(1) "Don't engage in a financial relationship with someone who seems more interested in your assets and his product lineup than your concerns, your family and your personal financial goals. Amen.

(2) "Don't think of your home as an investment. Once you subtract the cost of repairs, remodeling, mortgage interest, property taxes, insurance, landscaping, selling costs, etc., you'll be lucky if your "investment" keeps up with inflation.

(3) Don't be duped by the Wall Street Promise Machine. Wall Street's big players use advertising as propaganda; attempting to trick you into believing that they are smarter than the competition or have some secret that will give you high returns with low risk. Don't be fooled. Last year, 75% of actively managed stock mutual funds under performed their benchmark index. . . .

(4) Don't waste time feeling foolish or regretting past financial mistakes. Better to spend your time figuring out how to get to your financial goals from where you are today. Get the answer to the most important financial planning question — "How large does my nest egg need to be so that I can retire at the time and in the lifestyle of my choosing?" Investing for retirement is a complex project that requires expertise in subjects that few investors possess, so don't hesitate to find competent help.

(5) Don't overestimate your investment prowess. We (men especially) have a tendency to overestimate our investing skill as well as our portfolio's performance. Few investors know their portfolio's rate of return. Even fewer know how it compares to a comparable portfolio of index funds.

(6) Don't think for a second that you can get quality financial advice at a price that is less than what you would pay for annual lawn care. Much financial advice is being offered for free, or close to it these days. But I don't believe that first-rate financial planning and wise advice are commodities to be purchased from the lowest cost provider. {NOTE: I disagree that cost and quality are inversely related. High quality advice need not be costly advice. In fact, it shouldn't be.}

(7) Don't invest in anything that you don't fully understand. Don't buy any complex or confusing investment product without getting a second opinion from a financial professional who has no economic interest in the transaction.

(8) Don't waste your time trying to find a prognosticator or guru who knows what the stock market will do this year. I'd rather drink sour eggnog than listen to all those stock market predictions that occur this time of year. Unfortunately, on Wall Street, guessing is often mistaken for the gift of prophecy. Your financial advisor doesn't know either. There are three types of financial advisors. The first type has no idea what the stock market will do in 2013 and is not ashamed to admit it. The second type has no idea but won't admit it for fear of losing clients. This type of advisor is dangerous. The third type has no idea but believes that he does. This type of advisor is radioactive.

(9) Don't think for a second that you can jump start your retirement planning by finding the next Apple before its price takes off. Your losing picks will bring financial and emotional despair long before you find your needle in a haystack. Better to buy the haystack by investing in a total stock market index fund. Then you will own the American economy, a more stable and reliable investment than any one stock.

(10) Don't invest in an asset because you think its price will go up. If it doesn't go up in the short run you'll probably sell at a loss, adding one more item to your list of "Financial Mistakes I Wish I Hadn't Made.” Invest in an asset because it will harmonize well with the other assets in your portfolio over the long haul. The best way to save for retirement is not by stock picking or market timing but by saving as much as you can and investing it in a low cost, tax efficient manner. {NOTE: I disagree that you shouldn't buy expecting the price of the asset to go up. Why else would you buy?  That said, buy for the long haul and don't concern yourself with daily, weekly, monthly, quarterly and annual price gyrations. Stay the course. Although it's easier said than done, it must be done.}

(11) Don't forget that the most valuable retirement asset that you own cannot be priced in dollars. It is the sum of your character, education, natural talent and experience. For most of us this human capital is our most valuable, yet least appreciated, possession. If you live in America, you have the opportunity, unmatched anywhere else in the world, to bring your human capital to the workplace of your choosing for the benefit of yourself, your family and your community.

Summing Up

The financial adviser's 11 suggestions are definitely words to live by.

The best saving and investing advice that I can offer to younger people is straightforward.

And that is this --- Start saving early in life, keep saving regularly throughout your working years, invest in high quality American dividend paying companies for the long haul, and then sit back and enjoy the "ride" to a successful retirement.

But when prioritizing, remember to work extra hard on complying with admonition #11 --- it's the most important one.

Because life happens fast and you'll be getting old a whole lot quicker than you now think.

Thanks. Bob.


  1. Thank you for sharing. One may ask when they should start planning? And the answer is simple, the sooner the better! No age is too young to start. Peace of mind for your financial future can help make the road to retirement a lot smoother.

    - retirement planning in North Reading MA

  2. This comment has been removed by a blog administrator.