Awaken to These 3 Retirement Investing Truths

January 20, 2016

It’s true. All of it” -- Han Solo, Star Wars: The Force Awakens



I am sure by now I have to be the only person on the planet who has not seen Star Wars: The Force Awakens. I hope to rectify this soon and see it with my daughter this weekend. So in preparation to see the latest episode, we have started watching the original Star Wars trilogy again for the first time in years. In doing so, I have rediscovered that my favorite character in the saga is, without question, Master Yoda.

Now, everyone knows that Yoda is the wise Jedi master that taught young Luke Skywalker the ways of the Force. But you may not know that much of Yoda’s wisdom can be applied directly to retirement investing. That’s right, it seems Yoda knows investing, too. So, here are three retirement investing truths from Yoda himself:


Truth #1: “Do, or do not. There is no try.”

The most important part of investing for retirement is getting started. If you are reading this column, it’s likely that you are already serious about investing for your retirement years. But are you investing enough to adequately fund the lifestyle you desire in retirement?

It is extremely important to know how well your retirement goal is currently funded. Simply put, your retirement funding status is the present value of your retirement assets (which includes future contributions and an assumed growth rate), divided by the present value of your expected future retirement liabilities (income needs).




If the present value of your retirement assets is larger than the present value of your retirement liabilities, then your retirement is considered “funded” or on track. If not, then you must consider investing more, working longer, adjusting your investment strategy or all of the above.

Don’t wait to find out your funding status when it’s too late to do anything about it. Do it now.


Truth #2: “You must unlearn what you have learned.”

When it comes to preparing yourself financially for retirement, conventional wisdom is not always so wise. This is particularly true given the current interest-rate environment.

For example, I am frequently asked by clients if they should invest solely for income in retirement and avoid stocks all together. Well, in short, I think such a strategy could be a colossal mistake. Just look at the investors who recently reached for yield in securities such as high-yield (junk) bonds and master limited partnerships (MLPs). In many cases, the promise of high, stable income has been met with principal declines to the tune of 30% or more.

Others look to fixed annuities for their “guaranteed” income promises. Again, given the low-interest-rate environment, the real guarantee of annuities is a guaranteed low return on your investment coupled with a guaranteed reduction in your standard of living over time due to inflation. This is simply not the right time to buy these products.

In order to keep their retirement goals funded, and fight off inflation, investors are going to have to invest a sizable part of their retirement assets in a globally diversified stock portfolio, plain and simple.


Truth #3: “Fear is the path to the dark side.”

As we have witnessed recently, risk happens fast in the stock market. The nature of stock market declines tend to be swift and painful. As you might guess, this can lead to a great deal of anxiety that can rattle even the most seasoned retirement investor.

The pain caused by market corrections and bear markets can cause retirement investors to make purely emotional decisions and sell their portfolios at absolutely the wrong time. This could potentially cause irreparable damage to their portfolios, and their retirement lifestyle.

Remember, discipline always trumps conviction. Diversify well and stick to your strategy. Buy when others are selling. Sell when others are buying. Rinse and repeat.

Understanding these truths is a key step toward successful retirement investing. Executing a successful retirement portfolio strategy in this market environment is certainly challenging. As Yoda would say: “Simple yet difficult, the strategy is.”



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