On this episode, we share five commandments that should be written on stone tablets in your retirement plan.
The Reality of the Matter:
On this episode of the Retirement Reality Podcast, Mike Kojonen discusses five financial commandments you should be following.
1) Thou shalt not compare your investments to the stock market without the proper context.
If you’re invested conservatively, then you shouldn’t get upset if your portfolio doesn’t do as well as the market as a whole. That’s the trade-off for having less risk.
But if you’re exposed to big downturns and still not getting the full upside, then you likely have a problem that needs to be addressed.
“It’s important to have these meetings with your adviser to find out what level of risk are you comfortable with,” said Mike.
2) Thou shalt not give up before giving your strategy enough time to play out.
Some people push the panic button too quickly and allow fear or greed to cause them to make a bad decision. But if you have a defined strategy that’s been designed to work over time, you’re much less likely to make an unfortunate emotional decision.
“Don’t make a portfolio change and base it off a month or two months or even six months,” said Mike. “We’re not day traders here.”
3) Thou shalt not chase big returns too late in life.
If you’re in your 50s or 60s, it’s probably not wise for you to try to achieve the same investment returns that you enjoyed in your 30s and 40s, because you don’t have a long enough timeline to justify the risk that often comes with achieving those returns.
When we ask clients what their comfort level is for losses, they usually say “nothing.” We often find that they are invested too aggressively.
“As you get older, you should be looking at your investment strategies and your portfolio to actually be in holdings that are going to be appropriate for you at that age,” said Mike.
4) Thou shalt not ignore costs and fees.
Investing is never free, but the amount you pay can vary from one place to the next. Many investors overlook those costs and focus solely on returns.
We met with a client named Joe who had been working with a big brokerage firm. He didn’t know what fees he was paying in his IRA, and it turned out to be 4.5%.
“A lot of people have no idea what fees they pay in their accounts,” said Mike.
5) Thou shalt not overlook the importance of rebalancing and diversifying.
It’s nice to have some element of autopilot with your financial plan, especially if you’re not someone who enjoys messing around with investments all the time. But instead of using computer programs, it’s better to be more hands on sometimes.
Listen to the full podcast to hear Mike talk about his three-bucket strategy for keeping yourself in check. Use the timestamps below to find a specific segment, including a mailbag question from a listener.
4:13 – Mike talks about a place he never wants to visit again
7:43 – Thou shall not compare your investments to the stock market without the proper context
9:21 – Thou shalt not give up before giving your strategy enough time to play out.
10:59 – Thou shalt not chase big returns too late in life.
13:39 – Thou shalt not ignore costs and fees.
16:42 – Thou shalt not overlook the importance of rebalancing and diversifying.
19:46 – Mailbag: Can I get half of my ex-husband’s Social Security benefit
Thanks for checking out the Retirement Reality Podcast. We’ll talk to you again next week.