Repeat this to yourself
Especially every time you hear an expert tell you what is going to happen in the next year:
“Nobody, but nobody knows what’s going to happen in the next week, month, year or decade. If they did, why didn’t they predict the latest economic debacle.”
After you repeat that to yourself, acknowledge that the Boy Scouts had it right when they said, “Be Prepared!”.
Stick to 2 Key Principles:
- Hold high quality investments
- Diversify broadly
Know your total asset allocation.
You need to know how all the pieces are working together. Don’t look at your IRA or 401k in a vacuum. You must look at all of your investments together to make sure that your overall plan is working as it should and is not out of whack.
Make sure your total asset allocation is in line with your ability to take risk.
This will depend on your emotional make up, time until retirement, and how much income your assets will need to provide for your retirement.
Know your fees.
Too few people know the actual fees that they are paying … and can you blame them? Financial companies, mutual funds, brokerage companies, all do what they can to bury those fees somewhere the average investor will never be able to find them. But this is one place you HAVE to go the extra mile. The “hidden” fees you may be paying could be the difference to retiring one to five years earlier than you expected … or your money lasting one to five years longer in retirement.
Know how much you are allowed to contribute … and contribute as much of that as you can.
Whether you are using a 401k or an IRA to fund your retirement, make sure you know this year’s contribution limits (contact me if you need help) and fund it to the maximum you can comfortably afford.
Don’t chase returns!
This is the biggest mistake investors make. They pull out of an investment, right before it takes off and go into an investment, right before it tanks. Never invest based on last year’s return. It is a recipe for disaster. You need to invest based on your long term goals, in high quality investment, with broad diversification. If you must chase a return, do it with money you are able to lose without affecting your overall retirement plans.