By Scott Reed
Last week was declared “Retirement Readiness Week” by morningstar.com. Morningstar is an investment industry leader in providing research on the thousands of investment options offered to the investing world.
I was reminded it had been a while since I have written about investing for retirement. It is one of the most important things an investor can do, so let’s take a look at three concepts that are critical to the success of investing for retirement.
1. You must act. It sounds elementary, but this is a big problem in the retirement plan world. We have found that it is common to find low participation rates in retirement plans that require you to sign up for the plan. However, if you have an “opt out” clause – which says you automatically will be in the plan unless you opt out – you are much more likely to participate. Potential participants do not have as big a problem with the retirement plan as we once thought – they just don’t like to make a decision, period. If you are going to be successful in planning for retirement, you have to make good decisions, and the sooner the better.
2. You must invest your own money. Many of you simply do what is required in order to participate or to get your company’s matching money. You hope that a little bit of money on your part and a great return on your investments will get you across the finish line. The truth is that it is the other way around. Your investments are supposed to help you reach your goal by working for you over the years. But the number that matters most is the amount you are willing to invest in your own retirement. In my experience, the investor’s contribution always has been much more important than the contribution from the investments.
3. That’s not to say an investment can’t change your life. It can – just like winning the lottery can change your life. I promise you that my life would change if I won a few million dollars in the lottery. We know it can happen. We see the winners on TV. But is it going to happen to you? How many people do you know that have bought a lottery ticket and won the grand prize? Exactly. It can happen, but it probably won’t. So don’t bet your retirement on winning the lottery or having an investment pay off in a huge way.
That means diversify. Don’t take the risk of betting on too few investments. Diversify your portfolio. It will take away the chance of striking it rich, but it will also take away the chance of having one investment fail you to the extent that you can’t recover.
So here is your game plan: Proactively decide to do something, invest your own money until it hurts, and diversify your assets so you will succeed over time. And one last thing, do it now. Study after study confirms the idea that you cannot wait until the time is right. There is never a perfect time to invest other than now. The sooner you begin to invest until it hurts, the closer you will be to winning this part of the game of life.
You may emotionally feel that you can do things differently and still succeed. You may be right. However, we have three decades of historical data that suggest emotion and successful investing just don’t mix. My father once told me that the strongest and the fastest horse doesn’t always win the race, but he is usually the one to bet on. Well, this investment philosophy is the strongest and the fastest way to invest for retirement and, for my money, it’s a pretty good bet.
Scott Reed is CEO of investment advisory firm Hardy Reed in Tupelo. Contact him at (662) 823-4722 or email@example.com.