Written By: Jeffrey Kiesel in Chester Springs, PA
Remind yourself verbally, especially when you are listening to the business reports with all of their expert opinions about what will happen in the next quarter or next year: “There is absolutely nobody who knows what’s going to happen in the future. Not next week, month, year or decade. If they did, why didn’t they avoid the latest economic debacle or market disaster? Or why didn’t they retire on all the money they would have made?”
Later on you should also acknowledge that the Boy Scouts had it right when they said, “Be prepared”.
1. Use 2 Key Principles
Use high quality investments and instruments, either in the market, real estate or hard assets and other quality collectables.
Diversify broadly according to your stage of life. Risk tolerance usually decreases with age.
2. Track Your Total Asset Allocation
Keep a record of all of your accounts and instruments….401(k)[403(b)] and IRA. Know how all the pieces are working together, and what your allocations are for high and low risk. Establish a retirement plan that will change in risk diversification as you move from your productive and accumulation stages, into more asset preservation as you mature. Make annual assessments of the total portfolio to make sure that the results are working towards your overall plan. Take the initiative to make changes as needed to avoid losses and use reinvesting to maximize the compounding affect.
3. Find Your Allowable Contribution Limit and Use It
The yearly limits of a 401(k) and IRA change each year. Know what the limits are and then try to contribute as much as you can to help maximize your retirement nest egg. Struggling in younger years to increase your retirement savings will give you a more enjoyable and less stressful retirement lifestyle.
4. Align Your Asset Allocation with your risk tolerance and age
Our tolerance of risk is dependent on our emotional makeup along with reasoning skills and our experience. Usually the emotional part is the dominate factor but even that becomes tempered with age for most of us. The other part is the analytical assessment of market history and our need to provide funds for our retirement. The battle is between our perceived need for more portfolio growth and the reality that we could lose a portion of our nest egg with a market drop or correction. Some advisors suggest the “Rule of 100” which states that 100 minus your age, is the most you should have at risk in the market. If you lost 20% of $100,000 in 2000-2001 and lose 20% of $200,000 in 2013 or 2014, which will hurt your retirement lifestyle the most? Protect a portion of your nest egg that you can’t afford to lose.
5. List Your Account Fees
Many people have no knowledge or understanding of the total fees and charges on their accounts each year. The reason is that financial advisors and companies, mutual funds, brokerage companies will bury and hide fees where they won’t be noticed or detected unless you call their customer service departments and ask them. Be diligent about keeping a record of the fees and charges. It could help you retire one to five years earlier, or your money lasting that much longer in your retirement years.
6. Returns are Elusive!
A Wharton School Study shows that the majority of self directed investors will but when the market is near a high and end up selling near the lows. It doesn’t work to try to time the market, or chase last year’s performance expecting it to continue for the next 12 months. Retirement investing and planning should be for the long term with set goals and strategies. This needs to be using quality instruments and investments, along with a broad based diversification. If you feel the need for speed and pain (of possible losses), use funds that are expendable and will not adversely affect your plans. Some instruments will protect your principal and accumulated interest and will provide a lifetime income stream, which would be very beneficial for a portion of your retirement portfolio.
About the Author: Jeffrey Kiesel operates his own retirement income and planning business with a specialty in Social Security benefit maximization. To learn more, click on the following link (Jeffrey Kiesel).
Click here to see more educational articles from Jeffrey.
Was this article helpful to you? If so, please click on the Social Media icons on the right side of your screen to share it with others.