3 TIPS TO GET YOUR RETIREMENT PLAN ON TRACK
Do you seem to be disorganized and unconcerned when it comes to managing your retirement? Have you taken to heart conventional wisdom bandied about in the media? Avoiding costly mistakes when handling your money can be as effective as actually making money. These 3 tips will help you take control of your finances and get your retirement plan up to date.
Buy and Hold the S&P 500…Not
Go to a personal finance website and you will inevitably be given the advice to stick the lion’s share of your money in some kind of S&P 500 tracking vehicle. Whether it’s an ETF linked to the famous index (SPY) or an index mutual fund that provides the same linkage, the message is clear; own the largest US company’s and you will be ‘guaranteed’ to have a comfortable retirement. This approach was made famous by John Bogle founder and retired CEO of the Vanguard Group. He preached and preached this type of investing approach. He claimed that it was low cost and the most efficient way to build your wealth. Well if the past decade is any indication, the only one who got rich was Bogle himself. He became fabulously wealthy from pitching this approach. Unfortunately, his followers have managed to make exactly no money in the S&P 500 over the last 10 years (the ‘lost’ decade that I have mentioned many times in this column). That’s not taking into account the fact that these investors have seen the actual erosion of their purchasing power due to inflation.
The fact is that the world is a dynamic place. More and more economic growth is coming from sources other than the largest US firms. Over the same ‘lost‘ decade investors in smaller(IJR) or mid-sized(MDY) US companies would have had very nice returns( approximately 7% a year), even accounting for 3 market meltdowns. Basic knowledge about finance and accounting is necessary to know about the economy. Most people pop over here and other relevant websites for a basic idea.
Investors who looked outside the US fared even better. Not including Japan, investors in Asia (EPP) would have seen an approximate 15% annual return and Latin American investors (ILF) would have seen a 40% annual return. The lesson: Get your portfolio global in focus.
Stop the Intertia
For those of you who are not do-it-yourself investors, does this story sound familiar? I recently met with a wealthy cardiologist who wasn’t happy with his investment adviser. He said that his adviser was so unresponsive to his requests that even when he instructed him to sell out his entire portfolio, the adviser failed to execute his order. As a result, the value of his portfolio proceeded to lose 20 percent. Forgetting about the regulatory issues raised by the adviser’s behavior, the doctor told me that this was not the first time that this had happened. In fact, he has been unhappy with the level of service that he has been receiving for the past three years. The cardiologist was also disappointed with his investment returns and thought that he should have performed better based on market performance during the same period. When I asked him why he hadn’t transferred his account to a different firm, he said that he was very busy and didn’t have the time to get around to it.
By doing nothing, the doctor lost a ton of money, and will have to continue working longer than he had originally planned in order to ensure a comfortable retirement. It sure seems like that’s worth a phone call! I can’t stress enough the importance of staying on top of your investments so that ‘inertia’ doesn’t set in.
Consolidate
The third mistake is having multiple investment accounts with different firms and not paying attention to their performance or how they are all invested. Your financial adviser should be like a Chief Financial Officer (CFO), who is responsible for the entire financial situation of a business. When a client has various accounts, his financial adviser should have a broader view of the situation. The professional will assess all accounts and make sure that they fit into a broader allocation strategy, and see how the entire financial situation fits his client’s goals and needs.
Stop relying on the media to plan your retirement and start taking control of your own situation. The more you stay on top of things the greater success you will have in hitting your retirement goals.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, SIFMA. For more information, visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il.
