It can actually be completely counter-intuitive. It requires mathematical modeling but also discipline, reliable information, and the right temperament. 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 5 Retirement Investing Tips From Today’s Financial Geniuses.
1. You Must Invest
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.” Berstein is making the point that you have got to be invested in order to get ahead.
- Scenario Suggestion: Not so sure? Try modeling different rates of return (cash savings account interest vs stock returns) and see the impact on your long term wealth and security.
The NewRetirement Planner makes it easy and fun to plan a secure future and make better decisions about your money!
2. You Need to Save in Order to Invest
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.
Zero is still zero
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.
- Scenario Suggestion: Model different savings rates in the NewRetirement Planner. Find out if you’ll run out of money.
3. Retirement Investing is Not Math
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.”
- Scenario Suggestion: 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.
4. You Don’t Have to Be Average
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?”
- Scenario Suggestion: Want to see above average savings applied to your life? Use the NewRetirement Planner to model a frugal lifestyle and see how much earlier you can retire.
5. Get to Know Your “Real” Returns
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.”
Here is the formula to calculate your real rate of return:
The rate of return on your money – (the inflation rate + the percentage you pay in fees) = real rate of return
- Scenario Suggestion: The NewRetirement Planner asks you to document inflation and your total rate of return and the system does the calculations. To calculate fees, you can either reduce your rate of return by the percent you pay in fees, or add fees as a budget item.