Monday, May 14, 2012

Ten Investment Commandments

I'm wrapping up the springtime 401(k) enrollment meetings this week, so here is one more post about salting money away for retirement.

I get asked from time to time, "What's the best way to invest?" My short answer is "keep costs low and diversify. The longer answer (which is only slightly more complex,) is:

1 Develop a workable plan
2 Invest early and often
3 Never bear too much or too little risk
4 Diversify
5 Never try to time the market
6 Use index funds when possible
7 Keep Costs Low
8 Minimize taxes
9 Invest with simplicity
10 Stay the course

All of the above sounds simple in concept, and it is. (The dirty little secret about long-term investing is, it's really not complicated. Despite what commissioned financial advisors tell you.)

What's tough is actually doing it over long periods of time and sticking with the plan. Most people chase the hot market segment of the moment. Or pull money out of under-performing investments at exactly the wrong time (usually the market bottom.) Or never put money into long-term investments in the first place.

The other secret is: The earlier you start putting money into 401(k)s, IRA accounts and investment accounts, the easier you'll breathe when you hit sixty and realize you have a cushion to see you through retirement. Sadly, many aren't starting at all:

... About 49% of Americans say they aren't contributing to any retirement plan, according to a new survey conducted by LIMRA, a trade association for the financial services industry.

"The findings from this survey were disturbing, given that people will increasingly need to rely on their personal savings to make ends meet in retirement," said Matthew Drinkwater, associate managing director at LIMRA's retirement research division.

If you missed an early start, you can still climb on board now and tuck something away. If you're over fifty, the Feds allow you to save up to $22,500 per year in a 401(k) account, and you can also fund a ROTH IRA with after-tax dollars that will earn interest and income tax free.

And if you're one of those animation professionals who finds work, then gets laid off four months later, then finds work again, you can still put away 2% of your paycheck into a 401(k). It might not be a lot, but it's the equivalent of a couple of lunches ... and saving something is better than saving nothing.

Hulett's Last 401(k) Meetings

DreamWorks Animation -- Tues., May 15th, 2 p.m. Dining Rms B & C

Cartoon Network -- Wed. May 16th, 1 p.m., Main conference rm

DWA (Ventura Blvd. "How to Train Your Dragon") -- Thurs. May 17th, 10:30 p.m.


Celshader said...

As always, thank you for posting this advice.

I'm a VFX artist working without a 401(k) benefit. I top off my Roth IRA and my spouse's Roth IRA every year. However, this will be insufficient for our retirement, because we both started late. (ARGH!)

It took me a while to realize that it's OK to save for retirement outside of a retirement account like a 401(k) or an IRA. Without a 401(k), I'm starting save what I can in taxable accounts.

Steve Hulett said...

Good idea to use stock index funds and muni funds in taxable space. Munis are paying more than Federal bonds right now.

city said...

nice opinion.. thanks for sharing.

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