“Now YOU can learn about retirement planning in plain English. Planning for retirement can be confusing. I cut through all the industry jargon so YOU can learn how to achieve your retirement goals.”
I have 2 unhealthy food favorites: fried chicken and donuts. I try to limit my exposure to these. That means rarely having donuts in the house.
As for fried chicken, I generally only eat it once a month. This is usually the 3rd Sunday of the month, also known as “fried chicken” day at church. We bring in a big platter of it for lunch after worship service.
Lesson: Never sleep in on the 3rd Sunday.
Both of these foods are unhealthy. I may pay the price for eating them many years in the future, perhaps in my 50’s or 60’s. But since that is far off in the future, I typically don’t think about it and just enjoy the food.
This same behavior happens with many people that are saving for retirement. They contribute to their 401(k) (or TSP or 403b plans), but don’t really look into what they are investing in.
Then as their retirement date gets closer (let’s say 5 years or less in the future), they realize it’s time to get a little proactive about their investments.
- What should I invest in?
- What investments should I buy?
- Do I have the right investments to get me through retirement?
These are good questions to ask. But before you make any changes to your portfolio, do the following.
Stop and look at what you have now
Remember mall maps (when people still went to malls, before we could order everything from Amazon)?
They had all the stores in the mall listed on the mall map. But it did you no good looking at the map unless you saw the big red dot that said “You Are Here.” Once you find the red dot, it’s simple to navigate to the store you’re trying to find.
With retirement investing, you need to find your big red dot. That means take a look at what you currently own in all of your accounts. You may have multiple accounts: an old 401(k), a current employer 401(k), an IRA, a Roth IRA, a non-qualified brokerage account, etc.
Look at each account and determine what your total aggregate amount is and what types of asset classes it is invested in. Do you have 60% in equities and 40% in bond types of investments?
If you are like a lot of people approaching retirement and taking a first look at your holdings, you may be surprised that you have a lot more market risk exposure than you thought.
You’ll never know until you stop and look. Find your “big red dot” first.
Ask the right questions
Now that you’ve taken inventory of what you own, it’s time to ask the right questions to help determine if your current investments are suitable for you.
Here are some questions that will be helpful to you:
- What would happen to my current portfolio if a big bear market occurred?
- Am I sufficiently diversified?
- Am I taking too much risk?
- If I held this exact same portfolio in 2007 (before the 2008 market crash), what would have happened to me the next year?
Your answers to these questions are going to give you guidance on what investments you should buy as you approach retirement.
Get answers to your questions
Before you buy an investment, or make changes to your existing portfolio, get answers to these questions.
You may be sufficiently mathematically gifted to do this on your own. If so, you should definitely dig in to your account statements and see how each one has performed over the last 10 years. Be sure to quantify the risk and returns in your calculations.
Alternatively, you may want to ask a financial advisor. A good financial advisor will have access to tools that will allow you to see how your current holdings have individually performed over time. And more importantly, how your current holdings have performed collectively as a portfolio.
Has your basket of investments meshed well together, giving good diversification, risk minimization, and potential returns? You’ll want to know the answer to this before making any new investment decisions or purchases.
Approaching retirement is an exciting time. And it also brings a little anxiety for most people. That’s par for the course.
Getting answers to your investment questions will help you enjoy the excitement and help reduce the anxiety.
P.S. To make sure you do your 401(k) rollover the right way, download the 401(k) Rollover 10-Point Checklist today!