We could spend an entire article on why people need to make the sacrifice to put money away for retirement. Graphs and charts abound on issues such as longevity, the benefits of saving early, and the need for a well-diversified portfolio. The pressure to set aside something for later years often becomes more pronounced as many people start their retirement savings plan later in life. And, particularly for those in the healthcare field that have extended training beyond college, this becomes a heightened issue. The focus of this article is to highlight some simple “guide points” to taking control of your investments, especially in the 401(k)/403(b) plans that serve as the primary vehicle for most working Americans. Our “guide points” are simple to understand and easy to implement. They are what we use to help manage over $200 million dollars of client assets in our private wealth practice. Provided below are five broad guide points for consideration:
Fear and Greed Understand your investments Control only that which you can control a. The amount of time to invest b. The amount of risk to take c. The cost of your investments Avoid timing the market Think long term
/// YOUR SILENT PARTNERS Meet Mr. Fear and Mr. Greed, the two silent partners that can derail the best laid investment plans. It is important that investors learn to identify and control these two competing forces. Fear can cause investors to make irrational decisions as many people did in March of 2009 when the Dow fell to 6600 after recording a high in 2007. Failing to control their fear, many investors “swore off” the stock market for good and moved to the “safety” of Treasury bonds. That move caused those investors to miss one of the great stock rallies of the past 30 years while locking in losses as Treasury bonds ultimately fell in value. Greed, on the other hand, causes irrational decision making in the other direction by causing investors to suspend rational thought about what makes a proper investment. This was most evident during the 1999-2000 technology bubble when the tech market doubled in value inside of six months. Initial Public Offerings (IPO’s) were all the rage and the new technology darlings were “can’t miss” (or “sure thing”) investments. Wall Street analysts were touting new paradigms where “eyeballs” replaced “earnings.” Tech stocks, the modern day Sirens of Greek mythology, led many greedy investors to their doom. As an investor it is important that you identify these two silent partners and learn to control them. Once under control you can make rational judgments about your investments and how to properly structure a diversified portfolio.
/// UNDERSTAND YOUR INVESTMENTS Controlling your silent partners is important, but you need to understand what you are investing in for the long run. Most investors’ primary retirement assets are in their company’s retirement plan where some of the investments can be quite hard to analyze. Most of these plans invest using mutual funds, so a good place to start is with the prospectus of the mutual fund. This is a document that outlines who is managing the fund, what stocks and bonds they look to invest in, if they invest solely in the United States or across the globe, and many more pertinent pieces of information. If you are investing by yourself in stocks, you have to do a great deal more research to make sure you organize a diversified portfolio of securities. The Internet provides a lot of information about investing; but exercise caution as there are a lot of people that are trying to push investors in one direction to support their claims. If you are new to investing, stick with well established mutual funds that have reasonable expenses and good management. ECHO / / / 15