Don’t Count On Hitting A Homerun To Fund Your Retirement

By: ispeculatornew
Date posted: 09.05.2012 (5:00 am) | Write a Comment  (1 Comment)

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I hear it every day! Investors that start taking control of their retirement funds without taking time to put in place a clear and solid investment plan. Believe me, I’m all in favor of investors taking control instead of blindly trusting professionals. But wrong planning will usually end up leading you mistakes and in the end you will be paying for those in your later years when you’ll be forced to cut down on spending, trips and gifts to loved ones.

The Classic “Home run” Attempt

We all know someone who’s made a fortune on those 2-3 stocks that went up 10 or 20 times. Sometimes they are penny stocks, other times it’s about finding the Microsoft of Apple stock before everyone else. I’m obviously not saying that making such bets is wrong and should never be done. It would be dishonest anyway since I’ve disclosed that I just bought some Facebook (FB) shares. The key thing though is that Facebook is one bet I’m making with some extra money that I’m able to invest. I’m not counting on Facebook to fund my retirement. As much as I believe in the stock, I’m smart enough to know that there is a decent amount of risk involved.

Another problem is that those making bets on “home run” attempts will obviously get some right once in a while. How many of those investors that made a killing trading a couple of stocks ended up losing that money (and often much more) in their next few picks as they started to assume that they’d get many more right bets. Stock picking is incredibly difficult and the large majority of professionals struggle to make it work. I don’t see any logical reason to think that I could.

Use A System

I think that most of us should instead rely on a strict system to fund our retirements. Dividend investing is one obvious method, as is building an ETF portfolio. There are many other alternatives as well. More than anything, if you have a good system, your retirement will depend on:

-How much you contribute every month
-Your asset allocation
-How the overall market performs

Every month, I describe how I built and maintain my Ultimate Sustainable Dividend Portfolio and I expect the performance to remain very strong for several decades if I keep the same system.  I’ve determined how much I need to invest in order to reach my objectives. That way, I’m able to make riskier bets with any additional amounts that I’m able to contribute.

Fees and taxes

It’s so easy to underestimate the impact of fees and taxes but those end up making a world of difference. Instead of looking for the next Microsoft or that next penny stock that’s about to explode, we’d be much better off trying to save on recurring fees and taxes. It’s not as interesting for most of us, but that (and the amount we can invest on a recurring basis) will end up being the key factors in successfully funding a retirement.

How Are You Funding Your Retirement?

Do you aim for the fence? Do you have a solid system in place?

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1 Comment

  1. Pingback by Dividend Link Roundup — September 7, 2012 @ 4:00 am

    […] 1. Don’t Count On Hitting A Homerun To Fund Your Retirement @ IS. […]

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