6 Essential Rules to Make Your Retirement Investing Right

 In Bond Investing, Retirement

retirement investing

It’s more crucial than ever before that you begin investing for retirement as soon as possible.

The longer you invest, the larger that nest egg will be, and given that the US population is living longer and longer, you need to make sure that you have enough in your accounts and investments to see you through to the end, which can be challenging even if you do start early.

In addition, it’s important to follow some basic rules for retirement investing in order to ensure that you’re maximizing your potential returns while minimizing risk. Let’s look at six of the most important rules to know.

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Don’t Pay Attention to the Scuttlebutt in Retirement Investing

Yes, there’s a lot of chatter out there about market trends and indicators. Most of the people making these predictions are self-appointed gurus who have little to no actual expertise.

They’re just good at riling people up, which means their blogs, websites and radio shows get good ratings. The problem is that listening to these people can cause confusion for investors. To make matters worse, most have been wrong by a mile.

People have been predicting the meltdown of the bond market since 2011 and not only has it not materialized, but bonds are performing better than ever.

Of course, that doesn’t mean that everything will stay golden forever – there’s always the chance that the markets will take a tumble.

However, you do need to create your own retirement investment strategy and then stick to it, despite what the financial soothsayers might be proclaiming.

Speaking of Investment Strategy…

As mentioned in the first tip, you need to create a retirement investing strategy that is tailored to your specific needs, goals and risk tolerance level.

What’s right for you will not be right for someone else, so avoid plans that treat ever investor as though they were somehow the same. In the same vein, you should avoid falling for the “name recognition” ploy. This applies to the Warren Buffet portfolio plan, but also to many others.

There is no guaranteed investment model or strategy. There is no one-size-fits-all plan. Your risk tolerance, your amount of capital and your unique goals should form the basis of your retirement investing strategy.

Based on this evaluation, you can create the right mix of stocks and bonds to help you reach your goal while also reducing your exposure to risk.

That advice is echoed by Selena Maranjian writing for The Motely Fool. She says, “The most important retirement-related rule is probably this: have a plan.

You’re unlikely to accumulate as much money as you need and withdraw it according to a plan if you have no idea how much money you need and no plan for withdrawals.

Take some time to crunch numbers and come up with a road map. Be conservative, leaving room for bad luck, extended economic downturns, and the chance that you might live a very long time, requiring a bigger nest egg.”

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Pay Attention to Fees

In the investment sector, there’s a lot of misdirection, or sleight of hand. Firms want you to focus on the returns they’re promising with one hand, but not at the other hand, where they’re holding a horde of fees that will be slapped on your account.

You need to realize this ploy for what it is – chicanery. In fact, a recent study actually found that most IRAs and 401(k) accounts underperformed not because of poor asset choices, but because of the number (and value) of the fees applied to the accounts.

In fact, robo-advisors are the superior choice here, even over a dedicated professional financial advisor. Robo-advisors provide outstanding assistance with building a robust, reliably-performing portfolio, and the fees will not eat you alive.

Don’t Fall for the Newest Trend

There are always “new” assets being touted by fund managers that promise instant results, faster growth, massive reduced risk or other attractive qualities.

Don’t fall for that lie. Remember that what you need are assets that provide proven results, not flash-in-the pan assets or an empty promise that turns out to be severely underperforming.

This is your financial future we’re discussing, and you really can’t afford to take huge gambles with it. Some risk is fine, unavoidable, actually, but there’s no need to increase your risk for what will ultimately amount to no reward.

Add It Up

It is important that you do more than simply know how much you’re bringing in each year, and how much you’re spending. That’s a superficial understanding.

You need to really calculate your net worth, which is actually the dollar difference between the assets you own and the dollar value of your debts, or what you owe.

This applies to all assets (investment vehicles, retirement accounts, real property, etc.), and liabilities (mortgage payments, school loans, medical bills, etc.).

By figuring the difference between these, you can determine your actual net worth and see just how far you need to go to reach your financial goals.

Be Unemotional

Emotions help make us human, but they can lead to rash decisions, particularly when it comes to retirement investing. In fact, emotions have no place in the investment process at all.

This can lead you to investing based on sentiment, rather than on logic. Robo-advisors have no such issues, and are able to apply pure logic to building a portfolio, which allows you to avoid the repercussions of investment decisions made out of fear, overconfidence, or unrealistic expectations.

In Conclusion

Retirement investing is crucial, but it is equally important that you have a strategy tailored to your needs, goals and risk tolerance. Anything less is folly.

Following the six rules we’ve discussed will help you do just that, while ensuring that you’re able to make better informed decisions regarding your investment activities.

Of course, working with robo-advisors also allows you to eliminate the potential for high fees to eat into your return (or cost you more than your loss), and to invest without emotion.

early retirement

Sergey Sanko
Sergey had started an IncomeClub after years of being an investment advisor for high affluent investors and managing fixed income securities. He is the lead investment advisor representative and holds a Series 65 license. Sergey earned his Executive MBA degree from Antwerp Management School.
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