Can you balance your work schedule? Sure. Your checkbook? Might as well give it a shot. Now, how about your portfolio? Your 401(k)? Or for that matter, the rest of your life’s financial priorities?
“The problem is that life gets in the way of retirement savings and investment,” says Cary A. Guffey, a certified financial planner with PNC Investments in Birmingham, Alabama. “Raising kids costs money — lots of it — and that’s just for them to go to school and eat. You may need to take out a second mortgage just to pay for the extracurricular activities. I was complaining to a friend about the cost of my son’s soccer when he educated me on the expense of dance for little girls, which made me feel better about cleats.”
And as Guffey will tell you, investing in athletic shoes is one thing; buying stock in a company like Nike (ticker: NKE) another; and mastering the fancy footwork or retirement planning another still.
[See: The 10 Best Energy ETFs for an Eventual Bounce.]
We asked financial experts for 10 solid recommendations to find the level playing field where retirement and general investing meet. You don’t need cleats, spikes or running shoes to play, either: just a willingness to go the distance.
Before anything, retirement first. Allocations within retirement accounts and the rest of a portfolio differ from person to person, couple to couple. But as for priorities, “The only time one should reduce retirement investing is when the three basics of survival are at risk: food, shelter and water,” says Lee Frush, a certified financial planner with Atlanta-based Cornerstone Financial Management. “Anything else isn’t as important.”
Healthcare next? As Americans live longer, paying for health care in retirement has become an explosive issue. Somewhere in the retirement picture, “Health savings accounts are a compelling long-term savings vehicle that offer greater tax advantages than even a 401(k),” says Steve Auerbach, CEO of Alegeus, a Massachusetts-based consumer-directed healthcare solutions provider. “HSAs are triple tax advantaged, meaning they aren’t taxed on contributions, earnings or withdrawals for qualified expenses.”
Balance risks between accounts. Getting aggressive on all fronts amounts to a perilous formula. “The point is not to do one over the other — retirement versus other investments — but to understand the risks of each and balance them,” says Josh Sailar, a financial advisor at Los Angeles-based Miracle Mile Advisors. “An investor planning for retirement should only take the most amount of risk necessary in order to reach their goals. Actually, that’s where other investments such as alternatives can really come into play. Alternative assets can help to mitigate the risks of a conventional retirement portfolio if used properly.”
Diversify aggressiveness. If any of your account isn’t growing as planned, “First take a look at the underlying investments,” says Timothy S. Koehl, director of financial planning at Bernhardt Wealth Management in McLean, Virginia. “Before making a decision to concentrate an investment into just a few stocks, understand that this involves a tremendous amount of risk. A better approach to boost returns over time is to take on more risk in a diversified portfolio that has a better balance of risk versus return.”
[See: The 10 Best Ways to Buy Tech Stocks.]
Don’t get burned by the hot dot. Think of it as the next big thing — and an even bigger temptation to try market timing. “The hot dot can provide great returns for short periods of time or even years such as the tech rally in the late 1990s,” says Ken Hoffman, managing director and partner with HSW Advisors in New York. “But figuring out when that rally will come to an end is tough. And what’s even tougher is hearing about all of the money your friends are making in the stock market — and you’re not in those hot stocks. How do those people feel after watching Cisco (CSCO) hit 80 and then drop to 20?” (This happened between 2000 and 2001.)
Put your nest eggs in three baskets. For anyone recently retired or retiring soon, “The objective is not to get rich quick: It’s to keep from becoming poor,” says Ken Moraif, CFP, host of “Money Matters with Ken Moraif” radio show and senior advisor at Money Matters in Dallas. “One needs to look at short-term, medium and long-term goals. Allocating your money towards each of those goals is always a trade-off between what you want today and what you’ll need in the future.”
Don’t be the buy high guy. Almost as bad as the hot dot is the hothead who makes snap decisions out of impatience. It’s understandable, says Shankar Iyer, wealth management advisor and senior vice president of Verschuur/Iyer Group of Merrill Lynch in Chicago. “Most stocks were negative or flat in 2014, while certain stocks roared ahead. The knee-jerk, emotional reaction is to buy what has just performed well. It’s human nature to see a good thing of the moment as a sure thing for the future. We’re simply wired that way. But I can’t say this enough: The key to investment success boils down to discipline and time.”
Save regardless. While you could see high-flying stocks as an excuse to invest less in retirement, or save even less, be careful where you tread. “The idea that anyone can reduce their savings by more aggressive investing might be analogous to paying your mortgage based on winning at poker,” says Alan Vorchheimer, principal in the wealth practice at Xerox HR Services and based in New York. “A very solid maxim I was taught is that you can save your way out of an investment problem but really can’t invest your way out of a savings problem.”
Consider above average as excellent. Assuming you put your retirement plan on a smart, short-term autopilot, but manage your mutual funds yourself, pride can go before a portfolio fall. “A big problem is that many people feel achieving market average returns is somehow un-American,” says Robert Johnson, president and CEO of the American College of Financial services in Bryn Mawr, Pennsylvania. He cites research from the market research firm DALBAR, which found that in 2014, the average equity mutual fund investor underperformed the Standard & Poor’s 500 index by 4.66 percent annually over 20 years. “In 2014 alone, the average equity mutual fund investor underperformed the S&P 500 by a whopping 8.19 percent.”
Take time for timing. What rings true for your portfolio and retirement assets today won’t likely work tomorrow. “The cost and timing of goals should drive asset allocation, so as retirement draws near, it’s wise to rebalance your portfolio away from stocks and in favor of bonds,” says Deiken Maloney, director of Goals Driven Investing at Northern Trust, headquartered in Chicago. “Nearer term goals should have much less exposure to risk, as it’s more important to have confidence in funding the goal than trying to squeeze out more return.”
Sure, it’s easy to get distracted. Guffey paints an all-too-common picture: “So now the kids are out of the house and you look at your retirement for the first time in years and realize you are impossibly behind. To take a line from ‘The Hitchhiker’s Guide to the Galaxy,’ don’t panic.”
[Read: How to Find a Financial Advisor.]
First, only cool heads can prevail. And as Guffey points out, “Panic leads you to doing something crazy, like putting all of your money in one stock.”
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10 Tips to Level the Field Between Retirement and Investment originally appeared on usnews.com
