| |
| |
|
|
|
|
|
|
Investing for Retirement - Not an All or Nothing Play
In 1519, Hernando Cortes, beached on the shores of unexplored Mexico, made a fateful decision: he would burn the ships he and his men arrived in and attempt to overthrow Montezuma and the mighty Aztec empire. The decision was risky. The Aztecs were meant to possess large numbers of brave warriors while Cortes had only a handful of men. If Cortes had the slightest setback there would be no escape. On the other hand, Cortes had no choice. The powerful Governor of Cuba wanted his head. Cortes had defied the Governor time and time again and his best option for getting out of the situation was to win favor with King Charles by conquering a civilization rich in gold and other treasures. Since Cortes' men might get a little antsy if the going got rough and decide they would prefer going home, Cortes decided it would be best to completely align their incentives with his. He did this by burning the ships. Anything but success would now equal death for Cortes and all of his men. Thus began the famous march from Vera Cruz to Tenochtitlan. Your retirement is not the conquest of New Spain. All or nothing plays, though they can be wildly successful and can lead to conquistador like splendor, are not the kinds of risks you should be taking with your future. Putting all of your savings into a single speculative venture should be reserved for situations when there is truly nothing to lose. When investing for the future you should take a much longer view of things. You should understand that the economy undergoes boom and bust cycles, fads come and go and sometimes you just plain get unlucky. To combat the vicissitudes of fortune you must diversify your investment holdings. A lot of people go about their savings in a very simple way: they have their employer take money out of their paycheck and put it in a 401(k) plan. This is a good, tax advantaged way to save. The problem often comes, however, when the employee falls prey to the employer's siren song of re-investing in the company. Perhaps the company has been doing well lately and the employee is bullish on the future success of the company. He or she then goes ahead and contributes 100% of his 401(k) to purchasing company stock. That is a potentially disastrous decision. Most people's livelihoods are not well diversified. For the most part people rely on their employer for their future well being. Your employer supplies your paycheck, you are counting on your employer for wage increases and you may also be expecting a nice little pension when you retire. That is already a lot of eggs in one basket. Companies fail suddenly, layoffs occur and you do not always have the meteoric rise in your career that you might hope for. To subject your savings to the fortunes of the company that you already are so dependent upon is something you should do only after careful consideration of all the alternatives. It might be the right thing to do, but you are taking on a lot of risk in doing it. So if you aren't doubling down on your company's future, what should you be doing with your retirement savings? The answer obviously depends on where you are in your life. When you are younger you can take a few more risks in life. Your portfolio should be weighted towards slightly riskier assets rather than stable, income producing assets. As you get older the mix should change until you reach a point in life where, finally, your portfolio consists of mostly income producing assets. This is not carte blanche to go on a wild stock-picking adventure with your retirement money while you are young. You should leave that to the pros. There are people who dedicate their lives to learning the art of investing. These people study The Intelligent Investor like it was a bible. They pore over annual reports and study where Warren Buffet went to lunch that day in an attempt to glean a precious new piece of information. If this profile does not sound like you, stay away from stock-picking. Even the pros have a hard time beating the market and they have advantages that you can never hope to have on your side. Sure you can gamble a little bit of money on that hot stock your cousin told you about, but think of it the same way as putting a pile of money on red at the roulette table: odds are you are going to lose your money, but, hell, you might get lucky and win. For proper long term planning, concentrate on finding a mutual fund that has a nice track record, low fees and a good rating from a reputable publication like Morningstar. If you want to make a bet on the growth of America, buy an S&P 500 index fund. For a little extra diversity, maybe research an international or emerging markets fund and put some money there. As long as you stay away from French companies, you should be fine. Seneca Spade learned about the wonders of diversification after losing way too much money on a hand of blackjack. He is an investment specialist and contibuting editor for whatbubble.com. If you would like to post your own comments, have any financial questions answered by an expert for free, or would like to read more on this subject please visit http://www.whatbubble.com, If you wish to re-publish this article, we request you retain all links and copy including this bio.
MORE RESOURCES:
Investing - Google News |
|
|
|
RELATED ARTICLES
Are You An Investment Dummy Like Me? I am good at a few things. I can certainly market well and I consult with others about how to bring more attention to their products and services on the internet for a living. Discipline in Investing and Trading Discipline can be simply defined as your ability to follow your investing and trading plan.Discipline is a rather simple concept. Asset Location - Increase Investing Returns & Reduce Your Taxes Location - Once the holy grail only for real estate investors is fast becoming the mantra for every stock, bond, and mutual fund investor. Experts and studies now recognize managing asset location is second only to asset allocation in determining the success of your investment returns. Short Term Savings Products When you invest, it simply means that you are putting your funds in products, in this case short-term savings vehicles, which will allow you to reap high financial rewards.Here is a list of the more common short term savings products you should consider investing in. Holy Grail Investments Every year I go to the Money Show in Orlando, Florida. Thousands attend. Get Wealthy With the Rule of 72 When it comes time to retire how many people would like to have a nest egg that is 2 or 3 or even 4 times larger than what they have? With an answer so obvious allow me to explain how you can make it happen for yourself.First we'll explain the Rule of 72. Maniac Investment Let's first understand what maniac means. According to Webster a maniac is "mad; raging with madness; raging with disordered intellect". The Power of Small Numbers: Trading Success is Based on Consistency, Not Home Runs Online trading is so seductive - just sit, click, and rake in the profits! But as anyone who has ever seriously attempted online trading will probably tell you, it's just not as easy as it sounds.Many beginning traders are seduced by the lure of the "home run", that big trade that makes you an instant millionaire and retires you overnight to your own private island paradise. Who Wants To Be A Millionaire? I am sure you have probably read about the power of compound interest. And how if you invested $10,000 at 10% return and let it compound for 50 years you would have a little over 1 million dollars. Creating a Financial Future - Putting Your Plan Into Action Part 1 This column has previously discussed "picturing the future that we desire", and outlining a plan to achieve it. We mentioned that the plan must include goal-setting, measurement, and implementation. Investors: Avoid These 5 Common Tax Mistakes For many investors, and even some tax professionals, sorting through the complex IRS rules on investment taxes can be a nightmare. Pitfalls abound, and the penalties for even simple mistakes can be severe. Need To Trade! You don't HAVE to be trading.As a novice trader, you'll often feel the need to trade. Diversify! The best way to avoid being hit hard by a stock market crash or another Enron/Worldcom fiasco is to make sure you don't put all your eggs in one basket. Diversification helps ensure steady growth of your net worth as you accumulate more assets. Pros & Cons of Investing in Bonds What are Bonds?A bond is a debt security, by which you are lending money to a government, municipality, corporation, federal agency or other entity known as the issuer. In return for investing in the bond, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it becomes due. Guru Focused: Robert Olstein's Short Sells While it is rather rare that value gurus sell stocks short, Robert Olstein has been selling short in his Financial Alert Fund. The accountant-turned fund manager spots values by looking behind the numbers. Eight Questions to Ask Your Financial Advisor You may like your financial advisor, but is he really looking out for you? All advisors are not created equal, and you have a right to know what makes them different! You also have a right to ask yours if he compares!(1) Do you use a holistic approach to financial planning by determining my values and goals?(2) Do you work on a fee-only basis, a commission basis, or both, and why?(3) Do you have company-established insurance requirements, or do you recommend insurance only when it is needed by your clients?(4) Do you attempt to 'beat' the market through timing and selection, or do you believe that attempts to do so are not worth the additional level of fees and risk? Are you aware that a vast majority of my returns will be based on asset allocation, rather than timing and selection?(5) Are you a Registered Investment Advisor, and therefore a fiduciary? In other words, must you legally and ethically put my interests above your own?(6) Do you meet with your clients at least three times a year to refine their portfolio and find out how events in their lives may have changed their financial goals?(7) Do you return phone calls the same day you receive them, and are you available to answer questions as they arise?(8) When you wake up each morning, do you ask yourself how you can best be of help to your clients that day?Adjust these questions as you see fit, and depending upon what your own objectives and needs are from an advisor. The best advice is to never be afraid to ask!© 2004 Matthew S. Getting Started Investing is Often the Hardest Part There are several reasons people give for not investing their money in things like stocks, bonds, and mutual funds. One reason is that they feel that they don't have enough money to make a serious investment, but a more common reason that many people have absolutely no idea how to go about getting started investing. The Perfect Economy? The U.S. Super Rules, OK? Do you rule your superannuation or does it rule you?It's easy to fall for some myths about your super unless you do some clear thinking about who is in charge. Virtually all Australian employees now have a superannuation account, many have several, even more than they know about. Investing in New Zealand - Learn how to Find Unique Investment Opportunities Investing in New Zealand might be much easier than investing in other western countries, thank to the excellent infrastructure, the low taxes and the assistance of the supportive NZ government.Technological Face of New ZealandNew Zealand has a unique reputation within the global market place.
|
| home | site map |
| © BullMarketData.com 2008 |
