The most underrated financial planning advice – Part 3

Last time, I talked about timing as a mistake people make in their financial planning.   Here’s two more.

“Investing is easy,” a friend told me, beaming.  “Really?” I responded.  “Sure, buy low and sell high.”  There was nothing I could say.  She’d discovered the secret.  But there was only one little problem.  Most people do exactly the opposite because of emotion, in this case usually better know as fear or uncertainty.  But you have to be bold when everyone else is fearful.  On the other hand be cautious when everyone else is euphoric.

Another mistake is not spreading the risk. “I’m putting everything into… You can’t lose money in…”  Fill in the blanks. In the ‘old days’, we used to invest 100% in a UK Balanced Fund.  Nowadays, I’ve seen people go all in to dotcom stocks, gold, real estate, and now the latest – Bitcoins.  And double their fun by leveraging.  And I’ve seen many go broke.  Diversifying the risk certainly isn’t nearly as exciting. But then going broke isn’t all that much fun either.

The most underrated financial planning advice – Part 2

Last time out, I talked about luck not being a solid strategy and the Get Rich Quick scheme, as mistakes people make in their financial planning.   Here’s another couple.

 

Later is now.   I’ve heard, “Right after I get our new car paid off.    Or after we finish the house remodel.   Or we needed the new boat for the family.   Or he kids need braces.  Or we need that motor home for family vacations.  Or when the kids finish University.  Then I’ll save.”  But at 55, it really is too late to start.   START TODAY.

Also how many times have I heard,  “I’ll want to switch to cash because the market looks bad and I’m already down so much.  And I’ll get back in when the markets settle down.” My response always is, “Tell me exactly what the world will look like on the day you know it’s ok to get back in.  If you can’t do that, it isn’t a plan only a fantasy.”   After thirty years in this business, the markets have NEVER settled down.  Stick with and stay the course.

 

The most underrated financial planning advice – Part 1

We all make mistakes, don’t we?  The trick is to learn from them.  Over the next few blogs, I’m going to pick out some bits of advice that not everyone accepts, or follows but here goes.Luck is not a strategy one should trust.

I’m sure we’ve all heard,  “If only I could just win the lottery…  If I just pick the next hot investment…  Maybe some rich uncle will leave me a fortune…”    Trust me, I’ve heard every one of those.  Make your own luck.  Or be prepared for the time when a lucky break comes your way and be ready for it.  But it doesn’t happen too often.  Does it?

We’ve all heard, “You can make a killing financially. It’s easy, fast and guaranteed.” I tell people, “It is easy, fast and guaranteed. But only for the guy selling the magic scheme.  And someone is going to get killed financially.  Guess who that might be?

 

The Single Most Costly Retirement Mistake to Avoid (and Why)

Nearly everyone has a dream for their retirement. It often includes leaving work while you’re still healthy enough to be active and independent, planning to buy a boat, or holiday home, or simply spending as much leisure time as possible. And after decades of dedicating most of your waking hours to your work, enjoying the fruits of your labour is a laudable goal.

The stark reality is that far too few of us fully reach our retirement dream, and for a variety of reasons. But when you get right down to it, the vast majority of Pensioners who don’t enjoy an ideal retirement failed to take steps that would have made a big difference. Frankly, they made mistakes that caused them to fall short.

But there’s one mistake above all others at the heart of people’s failure to achieve their retirement goals.  And that mistake is not starting early enough to contribute to their retirement savings.

Time really can be worth more than money

 When it comes to arriving at retirement with the most money, the best thing you can do is start putting away as much as you can as early as you can. It’s truly that simple. The difference between starting young and putting it off can be enormous.

For instance, if you started investing £100 per month in a fund that grew at just 3% per annum at age 20, you’d have about £93,000 at age 60, If you put it off until 40, that same £100 per month would be worth only around £32,000 at age 60. But here’s the rub.  That extra £61,000 would have been generated from only £24,000 out of your pocket.

It’s the extra years in the market that allows your money to take advantage of compounded growth and deliver the big payoff. If you delay to age 40, you’d need to kick up your contribution to around £285 per month — an extra £44,000 — to arrive at retirement with a similar balance.

Time smooths out your returns

But it’s not just about the power of compounding growth. The longer you invest and regularly contribute, the better your odds of capturing the best returns. The market has its ups and downs, and it’s impossible to predict when they’ll happen.

If you start contributing early and regularly and invest through every part of every cycle during your working years, the law of averages will be in your favour. If you keep putting it off, waiting for the next crash, you’ll miss out on a lot of great returns.

Just imagine if you were one of the people who sold at the bottom in 2009 and sat on the sidelines for the past decade, watching the market more than double in value.

Even from the pre-Financial Crisis peak, the market has more than doubled in total returns:

By steadily contributing to your retirement investments for as many years as you can and through every kind of market, you’ll avoid the mistake many people made over the past decade: missing out on an historically profitable bull market while waiting for the next crash. At this point, even if the market falls by half, you’d still be far ahead of its 2007 peak.

Start as soon as you can (that means now)

Even if you’re not 30, start contributing as much as you can to your retirement savings now. Whether it’s maximizing the company contribution, or contributing to a Personal Pension, there’s no good reason to put it off.

The longer you wait, the more money it will take to reach your goals. It’s that simple.