Everything You Knew About Retirement Saving Has Changed
Dear Wealth Watch Reader,
Whether you’re already in retirement or are looking forward to it, there are certain pitfalls you need to be aware of.
Today, what you need to know to retire in style, and stay rich once you do.
Read on below…
Your Retirement Is a Journey, Not a Destination!
My publisher here at Seven Figure Publishing brought me onboard this division as chief income expert, so naturally, my inbox fills up with plenty of emails about retirement investing.
That’s why I’m dedicating this and periodic future articles to this critically important topic.
Whether you’re already in retirement or are looking forward to — and saving up for — your golden years, there are certain pitfalls you need to be aware of.
Avoid them at all costs.
In my many years of experience, one of the biggest snares that folks too often fall into, often unwittingly, is how they THINK about retirement and the whole process of saving for it.
Always remember: Life is a journey, not a destination!
So too is your retirement plan. Like any journey, you’re bound to hit a few potholes and detours along the way, which is why you cannot afford to follow a static approach to saving and investing for retirement.
Instead, you must keep your retirement game plan flexible and responsive to ever-changing market conditions.
Let me illustrate this with one simple example…
An old rule of thumb I have heard countless times in my investment career goes something like this:
You should use your age to guide your asset allocation. Let’s say you just turned 60. Then you should have roughly 60% of your investments in bonds, with 40% in stocks.
At age 65, you should have just 35% of your money in stocks, with 65% safely tucked away in fixed-income investments.
I wish I had a dollar for every time I heard this completely flawed advice. It’s pure baloney… don’t believe it for a minute.
Today, with interest rates bound to rise from multidecade lows, and with most traditional fixed-income investments still paying little or no yield, you cannot afford to be a “slave to safety.”
If you do, you’ll have a very difficult retirement when interest rates inevitably rise from record-low levels.
Heck, most bond yields today can’t even keep up with inflation, and mark my words, the cost of living will only accelerate from here. This will wind up handing bond investors a very big hole in their portfolios.
But everyone knows stocks entail more “risk” than bonds. Many investors simply can’t cope with this “risk” in retirement.
This is another widely misunderstood concept, but let me allow the world’s most successful investor, Warren Buffett, to debunk this particular myth.
As a shareholder myself of Berkshire Hathaway stock, I eagerly await Buffett’s annual letter to shareholders. It’s always packed with timeless wisdom and insights. This year’s letter is no exception. In it the Oracle of Omaha points out how investment “risk” is truly in the eye of the beholder…
“Risk is the possibility that [your investment] objective won’t be attained. By that standard, purportedly ‘risk-free’ long-term bonds in 2012 were a far riskier investment than a long-term investment in common stocks.
“At that time, even a 1% annual rate of inflation between 2012 and 2017 would have decreased the purchasing-power of the government bond…”
“I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier — far riskier — than short-term U.S. bonds. As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds… It is a terrible mistake for investors with long-term horizons — among them… savings-minded individuals — to measure their investment ‘risk’ by their portfolio’s ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk.”
Indeed, in today’s low-yield environment, a portfolio too heavily reliant on traditional fixed-income investments, like corporate, government and even municipal bonds, can be a recipe for disaster.
Instead, you must think outside the box and be creative with your retirement investment plan.
In my next article on retirement investing, I’ll illustrate the difference with actual real-world examples.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch