- Wise Words -
Don't dream retirement... start saving TODAY!
by rob deichert
As a new or even not so new entrant to the workforce you may not realize you need to save for your own retirement. The good old days of pensions are long gone unless something drastically changes.
Full disclosure: I am not a financial planner, but I promise you I practice what I preach!
If you haven’t taken a finance course and you don’t like numbers I suggest you keep it simple. Even if you have taken a finance course I again suggest you keep it simple. There is a plethora of research that shows it’s really hard to beat the market. I would suggest focusing on crushing it in your day JOB. Getting promoted or a big bonus will most of the time outweigh the impact of another 1% of return in your 401k.
Remember, time is on your side with compounding interest, so keep in mind that markets fluctuate and the sooner you start the longer the runway you’ll have to smooth out the dips.
If you want a few books to read that make it simple I suggest, A Random Walk Down Wall Street as well as, The Four Pillars of Investing. Four Pillars is a bit easier than RWDWS.
I’ll break this advice into two buckets- what you can control and what you can’t control.
What you can control
What you can’t control
So to recap - the simple steps
1. Max out your 401k - the more you put in earlier the less you’ll need to do later. Also as your income grows it’s a good discipline and allows you to live within your means. Think about it, once you max out, every extra raise or bonus goes to you versus some going into your 401k. You’ll be certain to get all of your match (if you have a match) and you’ll save on taxes.
2. Minimize your fees - choose the funds that minimize your fees. For stocks that’s most likely an index fund. Hopefully the fees are very low. Make sure you get all of the fees to compare. A personal example, my fiance at the time was in a job where the retirement plan was highly suboptimal. Annuities inside a 403b (similar to a 401k). Our strategy was to put everything into a stable value fund (had almost no return) but didn’t have 2+% yearly fees. When she left the job we rolled that money into an IRA asap.
3. Minimize the complexity - you’re early in your career you can probably go 100% equities. Then the goal is to have a mix of domestic and international index funds. That’s all you need. The best part of index funds is they reduce the number issues to worry about. If you have a S&P 500 index fund if the market goes up by 5% your fund goes up by a bit less than 5%, if it goes down 5% your fund goes down by a bit more than 5%. Versus if you’re in an actively managed fund, then you need to worry did your fund manager beat the market? Plus once you’ve educated yourself you’ll quickly realize that lowest fees is the way to go.
Some other things to keep in mind
Note: I’m not a financial planner. I’m not a estate planning expert. These tactics and strategies have worked for me. I strongly suggest you read, The Four Pillars of Investing and get moving on saving for your retirement today!
For more information on retirment planning, read my column "Don't dream retirement. Start saving today" and my original Wise Words on the three things every Early Stage Professional should do when starting out.
Rob Deichert is Founder & President of Deichert Consulting LLC ("DC") a boutique firm specializing in digital marketing, advertising and publishing. The services that DC offers range from Strategy and M&A through to Change Management, Organizational Design and Operational Excellence. Prior to founding Deichert Consulting, Rob held executive positions at AOL, Criteo, Rubicon Project and The Weather Channel.