13 Retirement Investing Tips from Today’s Financial Geniuses

Were you the kid in kindergarten that secretly ate paste in the corner? Or were you the one solving all the math equations from the end of the book on your first day in class?

(I knew those kids. Both of them were in my class – and I’m not yet admitting to being one of them…)
retirement investing tips
No matter who you were, it’s unlikely that personal finance and investing came easily to you. Being a financial genius can actually be completely counterintuitive and there is a lot of misinformation available online and it can be really difficult knowing who to trust. So, why not listen to today’s true financial geniuses?

Bill Bernstein, Morgan Housel, Bob Merton, John Bogle, Warren Buffett, Jonathan Clements and many others are some of today’s brightest financial minds. And, in many cases they prove the point that great minds think alike. They agree on many of the basic retirement investing principles.

Even though some of these suggestions may seem simple, don’t take them lightly. Even just one of these tips might give you a better chance at your dream retirement.

Here are 13 Retirement Investing Tips From Today’s Financial Geniuses…

1. You Must Invest

If you want to get ahead. If you want to make your retirement savings last and keep pace with inflation, then you really do need to invest.

Bill Bernstein is a retired neurologist and best-selling author who has written six books around the themes of investing, asset allocation, history and trade, including: The Four Pillars of Investing, The Investor’s Manifesto and If You Can: How Millennials Can Get Rich SlowlyBernstein did not mince words in his podcast with Steve Chen, founder of NewRetirement:

“I’m going to sound kind of insensitive and cruel, I suppose, but when someone tells you that [that they are not invested and are holding cash], what they’re effectively telling you is that they’re extremely undisciplined. And they can’t execute a strategy and that’s the kind of person who probably does need an advisor. If you sold out in 2007 or 2008 and you’ve been in cash ever since, you’ve got a very seriously flawed process and you’re probably managing your own money.”

You have got to be invested in order to get ahead.

2. You Need to Save in Order to Invest

Do you have that friend too? You know, the one that constantly talks about his stock trades and how he can easily beat the market whenever he wants to?

I decided to confront him the other day…I asked him how much he had invested. His answer? $7,000.

Sure, last year, he did beat the market. In fact, he earned 25%. Too bad that was only worth about $1,500. For those of us that have $100,000 invested and earned a measly 10%…we made $10,000; approximately 7x more than our “investment genius” at work.

The key here? No matter much of a guru you are when it comes to stock picks and investment portfolio selections, you still need to contribute money consistently into your retirement! If you don’t, you’re going to earn 30% a year on zero…which is still zero.

As Jonathan Clements, the extremely seasoned personal finance journalist told Steve Chen,

“It sounds ridiculously simple, but the one lesson that’s been driven home to me year after year, is the importance of being a good saver, everything else is secondary… If you have great savings habits, good things are gonna happen, everything else is gravy.”

Clements has been writing for 33 years for the Wall Street Journal, Citibank and his own blog, the Humble Dollar. He wrote over 1,000 columns for Wall Street Journal alone and has authored eight personal finance books and contributed to two others.

3. You Don’t Have to Be Average

JD Roth is part of a very un-average group of retirees — people who live extremely frugally and choose to retire extremely early — like in their 30s, 40s or 50s. These people make sacrifices now in order to save big percentages of their income and achieve financial freedom.

The movement is often referred to as “FIRE” (Financial Independence / Retiring Early). It’s about making some significant lifestyle choices immediately to try to achieve financial independence as quickly as possible. For most followers it’s actually more about mindfulness, frugality and simplicity – not just about money and financial independence.

As Roth described to Steve in their podcast, “I know those numbers might sound crazy to some of your listeners but he [Mr. Money Moustache] sat down and he showed the math and he’s like, “If you’re able to do this, especially if you start at a young age, if you are able to save half your income or 70% of your income, you don’t have to work for 40 or 50 years before you retire or before you decide to do something else. You can actually work for a much shorter period of time, for perhaps 10 or 15 years.” That was a huge mind-blowing realization when I looked at the numbers because this is not a scam or anything. It’s real, it’s just math. When you look at the math and you actually process it, you’re like, “Wow, why hasn’t anybody ever taught us this?”

4. Don’t Try to Beat the Market

So…about those stock picks that are supposed to beat the market. Ignore them.

Bob Merton – a key team member of the infamous hedge fund company, “Long-Term Capital Management” (LTCM) – wouldn’t have always agreed with that statement, but I bet he would today.

Merton and 15 other insanely intelligent and seasoned investors set out to beat the market with their new investment company, and for a while there it seemed like they were going to…until all hell broke loose.

Here’s a summary of the fund’s earnings:

  • Year 1: +21.0%
  • Year 2: +42.8%
  • Year 3: +40.8%
  • Year 4: +17.1% (low due to the Asian currency crisis)
  • Year 5: -50%…required Federal bailout to survive

Womp wommm….

As it turns out, even the highest intellect and experienced individuals out there can still get burned by the market when trying to beat the averages.

Instead of expelling all those extra calories trying to pick just the right stocks that will outperform the average, you’re better off just sitting back and riding that wave of averages. The S&P earns between 9-10% a year. Just contribute your funds, invest across the entire market, and reap your lazy reward. It’s still no guarantee of winning, but it’s worked quite well for a countless number of people so far!

As John Bogle, founder of Vanguard Funds said, “Don’t look for the needle in the haystack. Just buy the haystack!”

Here is a complete guide to why index fund investing is good for your retirement.

5. Understand the History of the Markets

Stocks will go up and stocks will go down. Everyone seems to nod their heads in understanding when this is stated, but then when the market has a little hiccup, it seems like half of the investors out there start running in circles with their eyes wide and their arms flailing…

Inevitably, many of these frantic Chicken Littles pull money out of the market at the exact wrong time and then fail to get back in when it starts recovering – which results in an overall loss when everyone else ends up doubling or tripling their money.

If you’re going to invest in the stock market, do so consistently and tell yourself that you won’t react to market dips and corrections. Just keep investing for the long term and believe that future growth is coming.

6. Investments Are Only Part of the Retirement Equation

Retirement planning entails a lot more than just saving and investing.

Clements told Steve:

“So people are thinking about investing in a completely different way and they’re also starting to say, “Well, okay. If I can’t add value by picking superior investments, where can I add value in my financial life?” And people are thinking a lot harder about what sort of insurance they need, what the role is of insurance in their financial life.

They’re thinking much harder about how much they should be saving, what it’ll mean if we have this sequence of return versus that sequence of returns. People are more focused on estate planning and they’re more focused on taking a holistic view of their financial lives and what I mean by that is, people are saying, “Okay. I got my portfolio here, I got my insurance here, I got my home over there and most crucially, I have my human capital, which is my income earning ability. And do all these different parts of my financial life work together? Are they in sync, or am I somehow making a mistake by looking at each bucket in isolation?”

It is really important that everyone put together a comprehensive and highly detailed retirement plan that lets you see and manipulate all of these different and important aspects of your financial life. The NewRetirement retirement planning calculator is one of the only tools that lets you do this on your own. It’s easy to get started with this award winning resource.

7. It’s Not Brain Surgery

Bernstein makes the point of saying that retirement investing is not brain surgery (and as a retired neurologist, he should know)! It should be fairly (well relatively) simple. In his NewRetirement podcast appearance, Bernstein recommended: “I could write on a box top a very successful investment strategy, which would be simply to put a third of your money each into the index of US stocks, foreign stocks and US bonds and that’s going to do extremely well.”
You don’t need fancy investment advice. You don’t need to do a ton of research and trade every day. You need broad diversification through indexes.
The trick of course is in maintaining that target asset allocation over the long haul through the highs and lows of the market.

8. Don’t Be Overconfident

Retirement investing might not be brain surgery, but it is not always easy.

Bernstein writes and talks about the pillars of and obstacles to investing success. Of the pillars, he told Steve that overcoming overconfidence is probably the most critical:

“But if I had to pick one out, it would certainly be overconfidence. Overconfidence in your ability to invest and overconfidence in your ability to tolerate risk. I recently came back from a conference for medical doctors about not just investing but also about lifestyle and practice issues. And physicians are notoriously awful investors and the primary reason I think why they’re awful investors is that they don’t take investing seriously. As certainly, they don’t take it as seriously as an academic subject as they take medicine and they’re just grossly overconfident in their ability. “

So what’s the big deal? What happens when you’re overconfident with your investments?
When you make a large income and when you start to think too highly of your own abilities, you start to ignore this little thing called risk…and that can be a recipe for disaster.

Individual stock picks, high yield bonds, property development, options, currency trading, business ventures of friends and relatives – these become the “investments” of an overconfident investor. Basically, it’s gambling masked in a suit and tie. Sometimes you win big, other times you lose it all, but in the aggregate, you earn far less than if you would have just invested your money in the general market and left it there.

Keep Your Emotions Out of It

9. Know the Potholes

As a whole, people are good. I firmly believe that. But, no matter what profession you dig into, there are always the bad apples. Financial advising is no different.

There are many fantastic financial advisors. They have a heart of a teacher, they want to see your succeed, and they have no trouble reaching out and guiding you in your time of need. Then, there are those that aren’t inspired by helping others. They’re motivated by the almighty dollar, and they don’t really care who they have to lie to or steal from to get it.

For this reason, you’ve got to know the potholes you could get yourself into in the financial world.

Financial advisors are paid through two main avenues:

  • By you on a fee based arrangement (an hourly rate, annual rate, or a percentage of your investments)
  • A commission from a fund they recommended

If you’re paying your advisor a fee for their services AND a commission based on their fund selections, start to ask a few more questions. Do your due diligence to make sure the fund they recommended is a good performer and doesn’t have an exorbitant amount of fees

…Which leads me to the next set of potholes – the additional fees from funds. The following are the main culprits:

  • Expense ratios of the mutual fund you select
  • Transaction fees (for your purchase or sales of the investments)
  • Surrender charges (when selling the fund)
  • Annual account fee or custodian fee

Don’t be overly skeptical and assume that everyone’s out to get you (NewRetirement is a good place to be – don’t go anywhere! ;)), but understanding these potholes will undoubtedly keep more money in your pocket and it’ll keep you more at peace because you’ll know exactly how your money is invested and where it’s all going.

10. Look for Values (Not Bargains, Values)

In his recent podcast with New Retirement, Morgan Housel explains how the millennial generation and Gen Z are really changing the way companies do business today – not necessarily in a direct fashion, but via their research and opinions about life, fairness, and social responsibility. Housel is a 34-year-old award-winning writer and venture capitalist with the Collaborative Fund who’s broadly interested in finance, behavior, history, psychology, neurology and sociology. He’s written for the Wall Street Journal and the Motley Fool.

Just 20 years ago, business was all about the bottom dollar. If you made a hefty profit, your stock soared and you did everything in your power to make even more in the next quarter. That’s what your stockholders wanted and expected.

Today, fewer people care about that same bottom line when they’re looking to invest with your company. Instead, they’re digging into your supplier history, your donation records, and the personal life of your leadership team. Young investors today want to be inspired by your company – by your willingness to help others and to fight for what’s right.

Take Lyft and Uber for example.

Both companies offer a taxi service to their customers and are perfectly capable in doing so. Uber has more market share, but just recently stated that they’ll do whatever’s necessary to get ahead, to accomplish more, and to become an even bigger corporation. In other words, they’ll step all over people if it means getting to the top.

After those statements, Lyft’s market share rose from 20% to 33%. They’re nicer and perceived as more socially responsible than Uber, and have therefore received many new customers because of it.

Before you make investments today, consider the social responsibility of the company or fund. If it goes down the tubes, the value of your shares might go right down there with it.

11. Look for Value (Not Bargains, Quality)

Warren Buffet evangelizes a similar idea about investing in value. However, his focus is more about investing in companies of quality rather than how much good they are doing in the world.

Two famous quotes from Buffet sum up this idea:

“Price is what you pay. Value is what you get.”

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

12. Seek to Understand Your Future Income

Retirement investing is such a mystery for many because they have no understanding of the end goal. All they know is they need a big pot of money that hopefully lasts from the day they retire until the day they die.

So what’s the magic number? How much do these people need to retire? When asked this question, 81% of people have absolutely no idea….

It’s because we’re talking about the wrong thing – says Bob Merton.

Instead of focusing on wealth creation, 401(k)s should emphasize the level of income employees can expect to receive in retirement.”

Very few people can make the connection between a lump sum of money and a consistent income source, but it’s imperative if you’re ever going to grasp what that pot of money can do for you in your retirement.

To make life easy, use the 4% rule. If you have a million bucks saved, plan to withdraw $40,000 a year for the rest of your life. It’s not a perfect rule of thumb (none of them are), but it will give you a quick indication of how big that pot really needs to be when you hit retirement.

Better yet. Use a detailed retirement planning calculator and really see for yourself how much future income you might need and discover different ways of achieving that income.

13. Money Isn’t Everything

This is the lesson that some people sadly never learn.

Upon recounting the implosion of the great LTCM hedge fund that we mentioned earlier in this article, Warren Buffett said something profound (as only he can):

To make the money they didn’t have and they didn’t need, they risked what they did have and did need–that’s foolish, that’s just plain foolish. If you risk something that is important to you for something that is unimportant to you, it just does not make any sense.”

Clements explained something similar to Steve:

“The problem is possessions become burdensome, the shiny new car breaks down, it has to be repaired and it goes from being a source of happiness to a source of unhappiness. By contrast, experiences don’t hang around. If anything our memories of them grow fonder over time. If you have a great vacation, a year later you might think it was a super great vacation ’cause you forget all the incidents or annoyances and instead focus on the highlights. So yes, have a purpose, second spend money on experiences rather possessions and then third, really crucial to happiness is having a robust network of friends and family.”

Yes, you should still save up money for your retirement, but do it with a purpose in mind. Have it there so that your kids won’t be burdened with your financial insecurity. Build up wealth so you can send your grandkids to college. Or, sock away that money not so that you can afford the RV of your dreams but rather that you can afford to explore this world for decades!

Explore the best retirement investments that don’t involve money.

Ready to apply some genius tips to your retirement plan?

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