Investing: Saving Your Retirement

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