| Everyone would love to retire early, but | | | | successful setting aside a healthy nest |
| they also desire to be free from the | | | | egg follow conventional wisdom it will |
| fear of running out of money. Changing | | | | needlessly reduce their lifestyle or |
| your attitude toward investing and the | | | | impact what they leave their children or |
| approach you take will help you | | | | use to support charitable causes. |
| accomplish both. Read on to see how you | | | | Traditional portfolio management views |
| can retire years sooner and make you | | | | stocks as being risky and bonds as being |
| money last decades longer. | | | | safe. As such, you should increase the |
| Last week I talked about our need to | | | | amount you have in bonds and decrease |
| change the way we view retirement. I | | | | the amount you have in stocks as you get |
| explained that seeing retirement as a | | | | closer to retirement. The rule of thumb |
| transition to a less-stressful, more | | | | is that you should have roughly your age |
| enjoyable job drastically reduces the | | | | in bonds, so if you are fifty your |
| amount you have to have socked away. | | | | portfolio should be 50% bonds, 30% |
| Even working just part-time during | | | | stocks and 20% cash. That's crazy! |
| retirement can allow you to retire years | | | | Along with that view is the philosophy |
| sooner, or make your money last years | | | | that you should buy an investment and |
| longer. | | | | hang on to it--buy and hold. Investors |
| Changing our view of retirement is only | | | | that lost 30-50% between 2000 and 2002 |
| half of the solution. We also need to | | | | know that buy and hold can be a risky |
| change our attitude and approach to | | | | proposition. We all know that there is |
| investing for and during retirement. | | | | the potential for stocks AND bonds to |
| This by itself will have a similar | | | | lose value. This is referred to as |
| impact on when you can retire or how | | | | market risk and interest rate risk. |
| long your money will last. Combining the | | | | Since the industry believes that you |
| two together can completely change the | | | | should buy and hold, the only way to |
| retirement equation. | | | | minimize the overall risk to your |
| Our life spans grow longer every year, | | | | portfolio is by changing the allocation |
| placing greater demands on our nest egg. | | | | between stocks, bonds and cash. |
| Moreover, as a nation we are saving less | | | | It all sounds great--but by believing it |
| and less. In fact, recently the national | | | | you may be forgoing tens (or even |
| savings rate was negative--collectively, | | | | hundreds) of thousands of dollars. I |
| we spent more then we earned. | | | | don't accept their underlying |
| Let's face it--few of us save as much as | | | | assumptions and neither should you. |
| we should. The demands of raising a | | | | There are other, more effective ways to |
| family, saving for our kids' education | | | | manage portfolio risk that may |
| and caring for aging parents make it | | | | dramatically increase your returns. |
| difficult to set aside as much as is | | | | Think about it. Interest rates the last |
| needed. By the time our kids are | | | | several years have been at historic |
| independent, our retirement may only be | | | | lows. That didn't change the traditional |
| 10-15 years away. | | | | allocations provided by the industry. |
| Unfortunately, the conventional wisdom | | | | They still said you should have 50% of |
| provided by the financial services | | | | your nest egg in bonds if you were 50 |
| industry hasn't made reaching our goals | | | | years old. The return on bonds wasn't |
| any easier. Conventional wisdom says | | | | even enough to keep place with inflation |
| that you should invest more | | | | and you were supposed to put half your |
| conservatively each year you are closer | | | | money in them? Ridiculous. |
| to retirement. Their wisdom also says | | | | It's possible to grow your money faster |
| that in retirement, you should only | | | | with less risk. It's possible to draw |
| withdraw 4% from your portfolio each | | | | out more than 4% without the fear of |
| year. | | | | running out of money. And it's done by |
| The conventional wisdom is wrong. | | | | adjusting conventional wisdom to the |
| Frankly, if the average person follows | | | | realities of the markets. Next week I |
| this advice it will be a wonder if they | | | | will share specific strategies and |
| retire at all! If those who have been | | | | methods to do just that. |