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