Artists and Retirement Investing

...or any kind of investing.

 

Many artists (not all) are a little hazy about what to put their money into. Their bag is creating, not poring over the stock tables in The Wall Street Journal. I'm not a licensed financial adviser, but doing 401(k) enrollment meetings the last eleven years has forced me to bone up on investing basics, because like it or not, I get asked a poop-load of questions about it, and I look like a dweeb if I just smirk and shrug my shoulders.  So here are the most-asked questions and my basic answers, applicable to anyone anywhere who wonders about investing in a 401(k) Plan.

 

Should I invest in a 401(k) Plan?  Sure.  It's a good way to shelter income.  Every dollar you stick into a traditional 401(k) Plan will be deferred from income taxes until you retire.  And many 401(k) Plans have a dollar match from the employer that you won't get if you don't participate (full disclosure: TAG's 401(k) Plan is "no match" because we enjoy two other employer-funded pension plans automatically.)

 

What should I invest in?  A combination of stocks and bonds.  The rule of thumb is, if you're younger, you should be heavier into stocks, if you're close to retirement age, you should be heavier with bonds with a short or intermediate term.  The stats show that a simple combination of 25% short-term bonds, 25% intermediate to long-term bonds, 25% U.S. equities divided between small, medium and large companies, and 25% foreign stocks will give you wide diversification that will be more stable than putting everything in one asset group (Large company U.S. stocks, say.) This kind of investment style is called Asset Allocation, and it's been shown to work well. At the end of the day (or fiscal year) it's Diversification that is the key.

 

What are the biggest mistakes most investors make?  In five words, it's "buying high and selling low."  Sounds stupid, but most people who invest for retirement jump into the "hot" investment segment of the moment (in the late '90s, this was tech stocks.  Now it's energy.)  Trouble is, by the time a segment is cooking, it's past the time to jump in.  The "selling low" part comes about when the stock market is sinking like the Titanic.  Most people hang on and hang on...and then, when they can stand it no more, sell in a panic.  Most times, massive panic selling marks the bottom of a market cycle.  (I've been there.  And been stupid. You don't have to be.)

 

To sum up, put something away every week, even if you have to scrimp.  I've had too many older artists come into my office over the years who don't have a pot to urinate in, usually because they made lots of dumb choices over the course of thirty or forty years.  Don't let it happen to you.