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August 19, 2020
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.)
No matter who you were, it’s unlikely that personal finance and investing came easily to you. Being a financial genius and getting retirement investing right can actually be completely counter-intuitive. 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 maxim that great minds think alike.
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 28 Retirement Investing Tips From Today’s Financial Geniuses.
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 Slowly. Bernstein 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.”
“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.
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 how 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 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 the Wall Street Journal alone and has authored eight personal finance books and contributed to two others.
Morgan Housel has a new book, The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness. In the book, Housel describes why doing well with money isn’t necessarily about what you know. It’s about how you behave.
Good investing and money management is not math!
Housel told Chen:
“To me everything I’ve learned about money, whether it’s personal finance, or investing or running a business, is that it’s not a math based field. It’s a soft social sciences based field. It’s closer to psychology and sociology and history. What’s going to separate the good from the bad in finance people who do really well and people who do really bad is not your intelligence. It’s not your education. It’s not your IQ. It’s whether you keep control over your emotions.”
“To me everything I’ve learned about money, whether it’s personal finance, or investing or running a business, is that it’s not a math based field. It’s a soft social sciences based field. It’s closer to psychology and sociology and history.
What’s going to separate the good from the bad in finance people who do really well and people who do really bad is not your intelligence. It’s not your education. It’s not your IQ. It’s whether you keep control over your emotions.”
An Investment Policy Statement is one way to make sure you keep your emotions out of the decision making and make rational decisions for future wealth.
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?”
“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?”
Numbers always tell a story. But, to get to a true story, you need to know which numbers to evaluate.
When looking at your retirement investment returns. You really need to subtract inflation and fees from your rate of return to get your real return rate.
As Allan Roth, a highly in demand, by-the-hour financial advisor with over 25 years of experience in the field, explained to Steve in the NewRetirement podcast:
“First of all, we give up most of our real return in the way of fees and what matters is our real return. If we are in 10% and there’s 12% inflation, we’ve lost spending power. You interviewed one of my favorite people, William Bernstein a bit ago and he mentioned 2% to 3% might be the average real growth of a portfolio. If you’re giving away 1% to 2% in fees, you’re giving away most of your return. You really get what you don’t pay for. In actuality, whenever I do benchmarking, probably 90% of the time I find that a portfolio has underperformed the low-cost index funds by more than cost would have predicted.”
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.
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 to 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!”
In this case, the haystack he is referring to is the whole stock market as represented by an index fund. You don’t need to find the most profitable company in the market, just buy the market.
Here is a complete guide to why index fund investing is good for your retirement.
Episode 11 of the NewRetirement podcast is an interview with Nobel Prize winner Professor Robert Merton. Merton is a globally recognized economist and expert on life cycle and retirement finance (among other things). He discussed what’s wrong with the current focus on just building assets and why we should focus on retirement income instead.
He strongly believes that the goal of saving and investing should be around sustainable lifetime income.
He told Steve in the podcast:
“That’s what the system is all about. I would say, this is not original with me for sure, a good retirement is that if you could sustain the standard of living that you’ve enjoyed in the latter part of your work life throughout your retirement for the rest of your life. That would be a good retirement.”
“Overwhelmingly, I’m trying to make the case the thing that matters for retirement is the amount of income you get and not how big your pot is. Those are very different. Sometimes people say, “If I have enough money, I’ll get the income. It will be fine.” That’s reality. You want a quick reality, let me just give you a simple case I think everybody can imagine.”
Explore 18 retirement income strategies.
A typical retirement age asset allocation has some percentage of money in stocks — to help grow your money and keep pace with inflation — and some in bonds, a more conservative investment.
David Stein, a former institutional money manager and current author and speaker, suggests that you might want to consider a lifetime annuity instead of bonds. In the podcast, he told Steve:
“If you have the predictability of an immediate annuity, you can pretend or act as if that’s really part of your bond allocation. And then you can invest the rest of the market more aggressively.”
Lifetime annuities give you insurance like benefits. For a fixed up front sum, an annuity will continue paying you for as long as you live — no matter how long that turns out to be.
Learn about the pros and cons of annuities.
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.
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?”
“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 Planner 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.
Episode 9 of the NewRetirement podcast is an interview with Ben Carlson — the author of A Wealth of Common Sense (both the book and the blog).
He suggests that it is really important to keep things simple, and also be careful to filter out information that you don’t really need.
“My whole ethos really boils down to the idea that less is more and I think for most people there’s such a temptation to always make changes to your portfolio or to your financial plan because there’s always so many great options out there. And so, it’s really kind of a double-edged sword for a lot of investors these days because it’s probably never been a better time to be an individual investor. There are amazing free tools out there today that people would have paid thousands of dollars for in the past. And there’s investment products out there, and strategies that are accessible to the retail investor that were only for institutional investors and high net worth clients in the past. So, it’s a great time to be an investor but it’s also really challenging because there’s so much out there and just so much temptation to try to do something else and chase the fads.
So, I think really one of the big points that I try to get across in the book is this idea of negative knowledge, and that’s filtering out what doesn’t work, or not what doesn’t work but what doesn’t work for you. And so, it’s really about understanding yourself, your own emotions and to a higher extent your lesser self, and understanding what doesn’t work for you. And so, if you can filter out all the bad stuff and the stuff that really doesn’t fit within your investment plan hopefully whatever’s left over is just what will work for you and that you can kind of stick with and avoid all the other pitfalls that a lot of investors fall into.
As an example, you will find a lot of ideas in this article, but you should probably IGNORE a lot of them and find what resonates and is relevant to you!
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.
Learn more about sample asset allocations and what is right for you.
Housel maintains that building wealth is actually a super simple formula:
Live below your means, diversify, be patient and that’s it. I don’t have anything else to tell you. That’s it.
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. “
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.
Are you an emotionally intelligent investor?
David Stein is also the author of Money for the Rest of Us: 10 Questions to Master Successful Investing. In his book he wants to give people rules of thumb for figuring out if they should buy real estate, crypto currency, individual stocks or whatever. His advice goes beyond simple index fund investments but is written with a regular person in mind.
He likens figuring out your portfolio to creating a garden. There is no single formula for which plants to cultivate.
“If you’re managing your own money, you can do what I call an Asset Garden Approach. You know with a flower garden there is no optimal flower garden. You just have a variety of plants you have perennials, you have annual, is different colors, some might bear fruit in some way or edible fruit.”
“It just takes a whole layer of stress off because your approach is there’s not a right portfolio. There’s a good enough portfolio using these rules of thumbs using, what’s the expected return and what’s the maximum drawdown for that asset class. And you can build a portfolio with a simple spreadsheet as opposed to coming with all these other embedded assumptions. And the idea is if you recognize there’s not a correct portfolio, there’s not an optimal portfolio, you’re not afraid to make changes. You can change your portfolio. If you want to try and experiment with 1% of your portfolio, you can do that. I mean that’s fine because you’re not undermining supposedly this optimal allocation.”
Learn more in the podcast.
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:
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:
Okay, this is going to be mindblowing. You probably think that hard work is the key to success in any field.
However, according to Housel, that just isn’t true when it comes to investing.
If you want to be the best basketball player in the world, you should go to the gym 12 hours a day. There’s stories about Tiger Woods who’d go out and hit 1000 golf balls at the range. Michael Jordan practicing 12 hours a day. That’s what correlates with success in those fields. It’s easy to think that if you want to be the world’s best investor you should be sitting in front of your computer crunching numbers 12 hours a day. Look, there’s going to be some quantum hedge funds that do it and do well. But by and large for the huge majority of people, it’s the opposite. The way that you’re going to do better is to stop trying.
If you want to be the best basketball player in the world, you should go to the gym 12 hours a day. There’s stories about Tiger Woods who’d go out and hit 1000 golf balls at the range. Michael Jordan practicing 12 hours a day. That’s what correlates with success in those fields. It’s easy to think that if you want to be the world’s best investor you should be sitting in front of your computer crunching numbers 12 hours a day. Look, there’s going to be some quantum hedge funds that do it and do well.
But by and large for the huge majority of people, it’s the opposite. The way that you’re going to do better is to stop trying.
Buy the index fund and don’t do anything else. No effort whatsoever!
Christine Benz is Morningstar’s director of personal finance. In her podcast with Steve she cites target-date funds as being one of the best innovations over the last 20 years.
“I think that the development of target-date funds, that’s the single home run in my career, if you ask me, in terms of helping really simplify some of the things that investors struggle with. So, how do you asset allocate a portfolio in a sane way given your proximity to needing your money? How do manage that portfolio on an ongoing basis?”
Learn more about target-date funds.
Scott Migliori was the Chief Investment Officer for U.S. Equities for Allianz Global Investors. He retired at age 48 and, while he mostly takes a passive approach to his investments, he does advocate some degree of risk at certain time periods.
In his podcast with Steve he suggests considering a risk budget and take advantage of it at the right time:
“Market timing or tactical asset allocation has a negative connotation to it for a lot of people. But I do think if you look at your portfolio and you have a certain risk budget, you’re going to want to take up risk when there’s more fear in the marketplace, where there’s more extreme movements in whatever asset class you’re looking at, whether it be commodities or oil or real estate or just equities in general. So there are certain flags that I monitor in terms of put-call ratios, in terms of volatility levels as measured by the VIX and in terms of just overall sentiment indicators.When they do get extreme and it does happen from time to time, that’s when I feel like the risk reward is much more of being in my favor and it’s time to be more aggressive. Now, how aggressive I guess depends on your risk tolerance. For me, I’m never going to bet the ranch, so to speak, given where I’m at with my family and my investment needs. But it certainly makes me feel comfortable being much more exposed to equities when you see those sorts of dislocations than when you’re seeing more of a complacent attitude in the marketplace.”
“Market timing or tactical asset allocation has a negative connotation to it for a lot of people. But I do think if you look at your portfolio and you have a certain risk budget, you’re going to want to take up risk when there’s more fear in the marketplace, where there’s more extreme movements in whatever asset class you’re looking at, whether it be commodities or oil or real estate or just equities in general. So there are certain flags that I monitor in terms of put-call ratios, in terms of volatility levels as measured by the VIX and in terms of just overall sentiment indicators.
When they do get extreme and it does happen from time to time, that’s when I feel like the risk reward is much more of being in my favor and it’s time to be more aggressive. Now, how aggressive I guess depends on your risk tolerance. For me, I’m never going to bet the ranch, so to speak, given where I’m at with my family and my investment needs. But it certainly makes me feel comfortable being much more exposed to equities when you see those sorts of dislocations than when you’re seeing more of a complacent attitude in the marketplace.”
When Chris Tokarski, managing director at AcoreCapital, was on the podcast with Steve, he had a lot to say about the real benefits — emotional and financial — of commercial real estate as a retirement investment. Just don’t forget the old adage of location, location, location!
Here he talks about the emotional benefits of real estate, an illiquid investment:
“The beauty of commercial real estate is if you don’t over leverage it, and you’re a long term investor, you don’t really know what it’s worth. So if I look at my stock portfolio, which is tiny because I mostly own real estate, I can every 15 minutes, change my emotions based on what’s going on, on the screen. The good news about real estate is you kind of know in this environment, it’s worth less, but you don’t know how much less and it doesn’t really matter because it’s not as liquid, you could sell the building, but you’re not going to. So it’s just you sleep a lot better at night, I think and just, it gives you less anxiety to invest in real estate.”
“The beauty of commercial real estate is if you don’t over leverage it, and you’re a long term investor, you don’t really know what it’s worth. So if I look at my stock portfolio, which is tiny because I mostly own real estate, I can every 15 minutes, change my emotions based on what’s going on, on the screen. The good news about real estate is you kind of know in this environment, it’s worth less, but you don’t know how much less and it doesn’t really matter because it’s not as liquid, you could sell the building, but you’re not going to.
So it’s just you sleep a lot better at night, I think and just, it gives you less anxiety to invest in real estate.”
He also likes the financial perks:
“So, from an asset class, I love it as an investment strategy, predominantly because I think it has tax advantages. Then secondarily, if you do it right, they paid dividends and unlike most of the stocks, or even the stocks that do pay dividends, the dividends are typically pretty low. Two, three, four percent. It’s rare that you can get something to pay an eight, nine or 10% dividend, but with real estate, if you do it properly or you can find the right investments, you can get yourself into an eight, nine, 10 percent dividend that has some tax shelter.”
Explore all the various ways you can invest in real estate for retirement.
Episode 29 of the NewRetirement podcast was an interview with Brian Bollinger, an entrepreneur and founder of Simply Safe Dividends — a company dedicated to dividend investing and generating passive income.
Here are a few of the reasons why Bollinger likes dividend investments:
“To me, total return is kind of an agnostic thing. I don’t really care a whole lot if it comes more from dividends versus earnings growth, I just like that a dividend return is kind of cold hard cash. It’s money in the bank, it’s a tangible thing, and the companies that pay a dividend, there’s some appeal there too because it limits the amount of retained cash flow a management team has.”
“Ideally, they are more disciplined. If a company makes a dollar in earnings, for example, and pays out 50 cents, they only have 50 cents left now with which to invest in projects. Hopefully that causes them to focus more on their highest returning projects. If they were to go out and issue a bunch of shares, there’s a cost associated with that because those shares would have dividends that must be paid too. I like it from a corporate discipline standpoint as well.”
Learn more about what to do with stock dividends in retirement.
In his first 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.
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.“
Okay, it doesn’t have to be blue. However, Rob Berger, author of Retire Before Mom and Dad: The Simple Numbers Behind A Lifetime of Financial Freedom, recommends that everyone create systems to convey all of your critical financial information in case something terrible happens.
He explained in the podcast:
“Yeah, I call it the, I Just Got Hit By A Truck Binder. I think this is true in a lot of relationships, where one person is sort of focused on the finances and investing, and the significant other or spouse doesn’t even have any interest in it, and that started to worry me, because I’m the one who has an interest in it. My wife, not really, and I thought, “Well, what if something happens to me? How is she going to know what to do with our 401ks, our IRAs, our taxable accounts? And, will she even know where everything is?”
“It starts off with a net worth statement that I update once a year, and then, below it simply has all of the documents, all of the brokerage statements, 401k statements, all of the bank accounts, a copy of our will, some financial information for our children, and I also sort of personalize it, so I have a letter that kind of walks through.
Here’s what I would… I’ve told my wife, “Look, if I get hit by a truck go hire Vanguard Advisor Services.” I don’t do that, because I don’t need to, and why pay the 30 basis points? But, she’s not going to want to do this on her own, so that’s fine, higher Vanguard, pay the 30 basis points, they will invest the money in a way that I think is reasonable, and walks through all this in the letter, and it’s a binder that I update once a year.”
Here is a complete guide to the types of estate planning information you may need to include in your blue binder.
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 the NewRetirement Planner to get detailed and really see for yourself how much future income you might need and discover different ways of achieving that income.
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.
Larry Swedroe is the director of research for Buckingham Strategic Wealth. He is also the author of 17 books on investing and over 3000 articles and posts about these topics. His latest book is Your Complete Guide to a Successful & Secure Retirement.
Given his background, you might think that investment advice would be top of mind for him. However, he considers the most important aspect of retirement planning to be life planning. In his podcast with Steve he said:
“Yeah, so that’s why we put the first chapter of the book is to plan a life in retirement. I had a good friend or has become a good friend, author Alan Spector, who wrote a wonderful book, Your Retirement Quest, and he focuses on what the research shows is that so many people when they retire, what they lose are the two things that are the most important determinants of whether you’re happy in life.
They are number one, the depth and breadth of your social relations and secondarily what I call a reason to get up in the morning. Something that is mentally stimulating and emotionally fulfilling, so you feel a sense of accomplishment as well. Once you have enough money to put food on the table, clothing, that kind of thing, you’re not worried about that. Literally those are the only two things that matter.
More money does not make you a happier is what the research shows.
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