Pre Retirement Planning Advice To Retire Early By 401k IRA Rollover Money Expert Bill Losey, CFP®
Bill Losey
September 23, 2008
www.RetireinaWeekend.com
Note: The following is an excerpt from Retire in a Weekend! The Baby Boomers´ Guide to Making Work Optional. Catch a sneak peek of the authors DVD, The 10 Biggest Mistakes People Make When Retiring & How YOU Can Avoid Them at www.RetireinaWeekend.com.
So you want to retire early, huh?
What would you say if I told you that the return you earn on your money has little to do with your ability to pick good investments (security selection)?
What would you say if I told you that the return you warn on your money has little to do with knowing when to buy or sell certain investments (market timing)?
What would you say if I told you that the vast majority of the return you earn on your money can be attributed to how well you divide up your money among the major asset classes – stocks, bonds, and cash (asset allocation)?
When you realize that whether or not you achieve your retirement goals will depend, in large part, on how well you position your assets, you´d have to say it´s one of the most important decisions you´ll ever make. The ultimate goal, of course, is a secure retirement. How soon you retire, your expected rate of return, how much risk you take, how much money you can take out, and how long your money will last, are greatly affected by this one decision. As a result, I spend a tremendous amount of time on the asset allocation decision with my private clients.
Unfortunately, many people still believe that trying to "time" the market and picking the next "hot" investment are the keys to success in reaching their investment goals. The financial media, and some investment companies, still perpetuate this myth. For example, financial magazines and rating services consistently publish ever-changing lists of the "best funds to own now" or "the 5 stocks to buy today" or "the only investment you´ll ever need". Many people turn to these publications for advice but these lists are backward looking and cannot predict future success.
Listen, to be a successful investor, you need to view investing in the context of risk. So rather than worrying about picking individual investments, the initial focus of your investment strategy should be on deciding how much you want to hold in stocks versus bonds, domestic versus international, value versus growth, and large-cap versus small cap. Notice how I didn´t mention anything about particular companies or sectors here?
Generally speaking, stocks are more volatile than bonds. Small cap stocks are more volatile than large caps. Growth stocks are more volatile than value. A domestic-only portfolio or an international-only will be riskier than a diversified portfolio that contains money in both. From year to year, no one, and I mean NO ONE, will be able to predict with any certainty what the best performing asset class will be. So, as a result, you´ll probably want to own a little bit of everything.
It´s important for you to see how the best and worst asset classes are constantly shifting and changing. As a bonus, go to www.myretirementsuccess.com. Click on the "Free Resources" button and select "Article Archives". Then, click on the link that says, "Asset Class Returns for Key Indices." This 1 page color chart is simple and easy to understand, and it will illustrate how various asset classes have performed over the past 20 years.
www.RetireinaWeekend.com
1-866-786-2521
Bill Losey, CFP®, CSA, is the author of Retire in a Weekend! He also publishes Retirement Intelligence, a free weekly award-winning newsletter. In addition to managing retirement investment portfolios on a fee-only basis for women and couples nationwide, Bill is the resident planning expert on CNBC´s On the Money.
Note: The following is an excerpt from Retire in a Weekend! The Baby Boomers´ Guide to Making Work Optional. Catch a sneak peek of the authors DVD, The 10 Biggest Mistakes People Make When Retiring & How YOU Can Avoid Them at www.RetireinaWeekend.com.
So you want to retire early, huh?
What would you say if I told you that the return you earn on your money has little to do with your ability to pick good investments (security selection)?
What would you say if I told you that the return you warn on your money has little to do with knowing when to buy or sell certain investments (market timing)?
What would you say if I told you that the vast majority of the return you earn on your money can be attributed to how well you divide up your money among the major asset classes – stocks, bonds, and cash (asset allocation)?
When you realize that whether or not you achieve your retirement goals will depend, in large part, on how well you position your assets, you´d have to say it´s one of the most important decisions you´ll ever make. The ultimate goal, of course, is a secure retirement. How soon you retire, your expected rate of return, how much risk you take, how much money you can take out, and how long your money will last, are greatly affected by this one decision. As a result, I spend a tremendous amount of time on the asset allocation decision with my private clients.
Unfortunately, many people still believe that trying to "time" the market and picking the next "hot" investment are the keys to success in reaching their investment goals. The financial media, and some investment companies, still perpetuate this myth. For example, financial magazines and rating services consistently publish ever-changing lists of the "best funds to own now" or "the 5 stocks to buy today" or "the only investment you´ll ever need". Many people turn to these publications for advice but these lists are backward looking and cannot predict future success.
Listen, to be a successful investor, you need to view investing in the context of risk. So rather than worrying about picking individual investments, the initial focus of your investment strategy should be on deciding how much you want to hold in stocks versus bonds, domestic versus international, value versus growth, and large-cap versus small cap. Notice how I didn´t mention anything about particular companies or sectors here?
Generally speaking, stocks are more volatile than bonds. Small cap stocks are more volatile than large caps. Growth stocks are more volatile than value. A domestic-only portfolio or an international-only will be riskier than a diversified portfolio that contains money in both. From year to year, no one, and I mean NO ONE, will be able to predict with any certainty what the best performing asset class will be. So, as a result, you´ll probably want to own a little bit of everything.
It´s important for you to see how the best and worst asset classes are constantly shifting and changing. As a bonus, go to www.myretirementsuccess.com. Click on the "Free Resources" button and select "Article Archives". Then, click on the link that says, "Asset Class Returns for Key Indices." This 1 page color chart is simple and easy to understand, and it will illustrate how various asset classes have performed over the past 20 years.
www.RetireinaWeekend.com
1-866-786-2521
Bill Losey, CFP®, CSA, is the author of Retire in a Weekend! He also publishes Retirement Intelligence, a free weekly award-winning newsletter. In addition to managing retirement investment portfolios on a fee-only basis for women and couples nationwide, Bill is the resident planning expert on CNBC´s On the Money.