While many of you want to believe that you are on track for retirement - and many of you actually are, confidence is not something you are comfortable with. It wears like a wool sweater on a summer day: protects you from the sun while melting what you are protecting in the process. In other words, there is no happy medium anymore. It seems to have simply left the arena. Or has it?
Ironically, those of you who were able to answer the questions in the previous post, "Now What Retirement?" will probably not be able to do the same in the next segment of our look at "Now What?" as we grapple with investments. Yet retirement involved investing. Didn't it?
In some ways, retirement or the near proximity of it is a form of investing. You did, in all likelihood use the same place where investors flock: bonds, stocks, commodities, perhaps and in many instances, that access came via your 401(k). This is, for the average American, the extent of their investment exposure.
You might argue that your home is an investment. In the truest definition, it is not. It is neither liquid nor accurately valued at the end of each business day. The process for buying and selling is neither seamless or efficient. In fact, every dollar surrounding the buying and selling of a home seems to be a waste. So no, your home is not an investment. Unless of course, it is lumped in with your retirement plan. But the parameters have changed in that event and it becomes more asset than investment asset.
But the not-so-near retirement planners consider each move they make to be investment driven. Then drive as if it were. And in taking the proverbial investment wheel, you need to know what the rules are.
In a skittish market seemingly set off by the slightest hint that all is not so perfect (and when has it ever been?), the temptation to follow all of the bad investor habits we have discussed here over the years is multiplied tenfold. You want to sell when everyone else is selling and buy when they shift course. You worry that what was once a good decision is no longer as good, even though little has changed. Sure, the news is the news and is fluid. But the news is much of the same, recast.
So, as the siren of sell sings in your ear, remember this: Consider risk, not performance. Risk is basically a four letter word for "diversifying your assets across as many classes as possible". While you may not be able to buy individual assets in each of the major asset classes in quantities enough to make diversity work well, you can buy the indexes. In times of turmoil, parking your money in the broadest based places - and they should have been indexed in the first place, protects your money in the same way the wealthy tend to protect theirs.
The smartest investors are not the ones who are all-in. In the case of smaller investors, the emergency account you have built up is similar to the cash reserves that the wealthy might have. If you don't have to sell anything, and that temptation is there when the market begins to slide, because you have money on the sidelines, you can wait it out. And that is why those who consider themselves more savvy as investors still know the real value of a portfolio is the cash available. Even if the only opportunity is surviving until there is one!
No investors ever folds. The investors who have been in it for the long-term know that even if the market news is bad, even if the gyrations seem to be getting closer rather than farther away, even as the concerns have become more global, panic has never gotten anyone a profit. But patience has. You may sell a loss but for tax purposes. And you may sell a gain perhaps because of out-performance or rebalancing. But the wisest investors never sell based on fear.
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