Investing is a journey fraught with challenges, particularly as retirement looms on the horizon. The urgency of safeguarding our nest egg intensifies as we approach the phase of finance where distributions from the accounts we have built up with savings become a reality. Yet, numerous studies in behavioral finance reveal a curious phenomenon: many Americans prefer to live on less during retirement than dip into their hard-earned savings. This tendency is further exacerbated during periods of market volatility.
So, how do we navigate these treacherous waters and remove emotion from the equation to fully enjoy our retirement savings? The answer is deceptively simple: we must stop relying on luck to grow our portfolio. Instead, we are more likely to be rewarded when a vetted investment process and financial planning meet proper execution.
It's a truth universally acknowledged that no one has quite figured out how to time the market. If they had, we'd all be following their lead. Yet, this is where most investors stumble and leave their money to chance. The typical investor often seeks “stock” tips from colleagues, family, neighbors, or news outlets, hoping to capitalize on favorable market conditions. However, market volatility has a knack for disrupting such plans. Instead, we should adopt a process that minimizes emotional influence on our investment strategy.
Whether you are selecting your own investments or have hired a portfolio manager, make sure you are following a developed process that will give you and your portfolio an appropriate barometer for making certain investment decisions. It is helpful if this process combines economic factors, technical analysis, and seasonal trends, in order to help guide your investment decisions across all phases of your financial journey. While no process is foolproof, it significantly enhances your ability to stay the course, especially during periods of market uncertainty.
Planning is another crucial aspect of the investment journey. Just as you diversify your investments, you must also diversify your investment accounts to mitigate tax liabilities. Proper tax diversification, encompassing Roth accounts, non-retirement funds, and deferred tax assets, is essential. While 401(k) plans often form the backbone of our investment savings, they shouldn't be our sole investment vehicle. Tax diversification helps spread our exposure to potential changes in the tax code and future tax hikes.
Once we establish a process and plan, executing them diligently is paramount. Regular monitoring and making adjustments as circumstances evolve are imperative to staying on track. Failure to review and adjust our goals can lead us astray in the long run.
Whether you prefer to manage your finances independently or seek the guidance of a fiduciary is a personal choice. If you're seeking expert guidance to navigate the financial landscape, it is recommended that you find a team that understands your financial situation and is not too quick to offer advice. Knowing that you are on a journey, remember that it takes the proper guide to get you where you desire to go.
Financial Enhancement Group is an SEC Registered Investment Advisor.
