CHAPTER 1
What? Me? Retire?
Who needs a book on retirement investing?
Maybe you're younger-early in your career. To you, retirement investing is something you do when you're retired. Or close to it. Too boring to think about now. Too far away to bother. (Wrong.)
Maybe you're in retirement now or close to it. And you already have a plan. Can't be bothered. But are you sure your plan is sufficient? What's more, are you sure your plan is in fact a plan-and not just a collection of tactics?
Either way, however old you are or however far along in your career, the time to think about a retirement investing plan is now. This book isn't just for retirees or soon-to-be retirees but anyone who plans to retire ever-whether that's next week or in three decades.
The Imagined Dichotomy
Many investors and even some professionals distinguish between financial planning and retirement planning-like they're two distinct phases, or the two are, inherently, radically different.
But in my view, this imagined dichotomy is wrong-this idea that you should invest one way for a period of years and then you need a whole separate set of rules upon hitting some milestone.
For most investors, whether you're 22, 52, or 82, financial planning is retirement planning is financial planning. Whether you're saving your first dollar or your four millionth (good for you!), you should consider the ultimate long-term purpose for your money, which, for many investors, is to provide for them (and their spouse) in retirement and/or leave something behind for the loved ones, a beloved cause, etc.
But maybe not! Maybe this doesn't apply to you. You don't need to think about the ultimate purpose for your money now. Maybe you're heir to a billion-dollar fortune. Your future is amply covered, you don't want to think about it, you bought this book only to level your kitchen table, and your entire purpose in life is to fritter. Fine! But for most everyone else, if you're holding this book, however old you are, you should be thinking, now, about your future prosperity.
Two Goals . and Some Non-Goals
I have two primary and very specific goals with this book-and some specific goals this book is not aimed at.
First, I hope to help you stop thinking about investing in a spliced-up way-that you should invest for a number of years one way, and then one day, a buzzer goes off signaling it's time to think about retirement. No! Instead, from the first time you fund an IRA or otherwise set money aside, I hope to get you thinking not just about retirement but about investing for your whole life. And if you haven't been thinking that way all along, there's no time like the present to change.
Sure, there can be nearer-term goals beyond retirement. You're young and newly married and want to save for a new home. Or you want to save to upgrade to a bigger home. Or you're saving for your kid's college or your college or a boat or whatever floats that boat. However, these should all be seen and felt as near-term sidesteps on what's otherwise a lifelong pursuit.
So I want you, right now, to stop thinking about investing and retirement investing and start thinking about investing for the entirety of your life. I want you to think about making plans now that increase the odds you achieve your goals, whatever they may be. (Heck, at this point, you may not even be able to easily and clearly express what those goals are! Or know what's feasible. This book will help there, too.)
By the same token, if you start thinking, now and always, about the long future ahead (instead of chopped-up phases), that doesn't mean nothing ever changes about how you invest as you near retirement. It might! But not just because on Tuesday, you woke up, went to work, went to a good party in your honor-and on Wednesday, you were retired. And now there are new rules because you're retirement investing. No-this is selling yourself short and potentially exposing you to investing errors that may unwittingly increase a key risk to you long term.
Maybe, as part of your longer-term thinking, you will need to make a change, whether big or small, at some later point. Maybe multiple changes. But your circumstances and goals should determine when that change (or those changes) is (or are) made, not just a circled date on the calendar.
An investing shift-big or small-might be justified . but perhaps 7 or 10?years before you retire. Or 5?years after. Or 12?years after. Or . or . or . or . But you won't know that if you think the primary driving factor is your retirement party, not your goals and the effort to increase the likelihood you reach them.
Benchmark for Better Results
My second goal is helping you choose a proper benchmark. If you get nothing else out of this book, I hope you understand what a benchmark is, how important it is, and what goes into choosing a proper one.
Maybe right now you don't even know what a benchmark is. That's fine-we cover that much more in Chapter 3 and beyond. But for now, think of your benchmark as an essential investing lifeline. It's a road map, showing your planned route-and how to take detours when necessary. It lets you know how you're doing-if you're going too slow or even too fast or getting lost in the weeds or utterly turned around. It can help you stay disciplined (an incredibly important yet often overlooked facet of successful investing). Overall, the benchmark, picked properly, can increase the odds you achieve your long-term goals.
The first operative word is properly.
Far too many investors invest without a benchmark at all-never mind a proper one. They effectively stick their thumbs in the air, hitchhiking along with whatever tactics suit their fancy at a point in time. What's worse, they may not even realize they're doing that! They may assume they've got a rock-solid plan that makes good and smart sense-but if you don't have a benchmark (and if you don't know what a benchmark is, then you don't have one), the odds increase you may be meandering. And meandering is a bad path to prosperity.
It can happen! You can stumble into a portfolio that can provide the kind of life you need down the road through luck (sometimes known as dumb luck-and in effect, the same thing). But if given the choice between dumb luck and smart planning, my guess is most folks would opt for the smart planning.
And the benchmark being proper for you is key. If your goal is to drive from New York City to San Francisco, a map of Düsseldorf won't help much. A map of the US Eastern Seaboard is better but still falls short. You need a map that consistently shows the way and highlights the "do not go" areas. A good benchmark can do that.
Second operative words: increase the odds.
I say that (or some variation) throughout the book-the aim is to increase the odds you reach your goals. Note I didn't (and won't) say, "The aim is to definitively get you to your goal-I promise." Why? This is a book on investing. Investing in anything requires some risk-which type (there are myriad) and how much depend on your unique goals and circumstances.
Plus, no one can guarantee you anything. US Treasurys are guaranteed in the sense they're backed by the full faith and credit of the US government, and so long as the US government doesn't go belly up, you will get your principal back, plus interest. (And no, I'm not one of those who thinks the US is teetering on a precipice. You need a different sort of book for that.) But you can still lose money investing in Treasurys if you don't hold them to maturity. (Never mind inflation's effect-which we cover later.)
No one can guarantee you reach your goals. Not even you can. First, investing involves the risk of loss. Can't escape it. You could bury cash in your backyard and avoid all volatility risk-but you're still fully exposed to inflation risk. This means having to earn and save a lot more, and/or downgrading your future cash needs and/or not minding your purchasing power being eroded over time. (More in Chapter 4.)
That's the investing side, but there is also tremendous room for your brain to go haywire. If you have wildly unrealistic goals (e.g., "I want my money to double every year!" or "I want market-like returns but don't want to ever experience downside!"), that can decrease the odds you reach them. If you have a great plan and a sound strategy and a proper benchmark but not the fortitude to stay disciplined over the long haul, that also decreases your odds.
Your aim should be taking steps to identify goals, picking a benchmark and a plan and then doing what's necessary to stick to it. And my aim is to help you. That's how we increase the odds.
Again, this should be a deliberate undertaking, whether you go it alone or with a professional. Not only is it critical you pick a proper benchmark, but you must also understand the risk and return characteristics of that specific benchmark....
