Written By: Austin Evans
The dictionary defines a myth as “a widely held but false belief or idea”. When it comes to your retirement, there are plenty of “ideas” or “beliefs” that to be quite frank are just dead wrong. These myths, though they may appear as sound principles, can be quite detrimental to one’s retirement, and if you are unaware of these myths, then you may fall victim to the “snake oil salesman” of retirement myths.
“Investing in_______ is a sure thing”
You have a conversation with one of your buddies, and he tells you that he has all of his money in_____, and he says it is a sure thing no matter what the market does. He may even tell you that his advisor assured him it is a no brainer, slam dunk, sure thing. At this point you are intrigued and ask him what it is. Your buddy tells you it is a bank insured CD, or maybe he says it’s a super safe bond. Either way, this sounds great to you because you can get a little bit of growth with a lot of safety of principal. It’s a no brainer…right?
These types of investments may have made sense for earlier generations where the average life expectancy hung around 65 years of age, but in today’s world of modern medicine, the average life expectancy is near 87 years and creeping closer to 90 years old. Doing the math, this means you could be in retirement for 30 or more years! If you are investing in a CD or safe bond, you are potentially missing out on any growth not to mention that ever so lovely term “inflation”. Today’s retirees do need to preserve capital. They also need to have some growth to help get through the long retirement years ahead without inflation eating up their portfolio. This is where a written plan with a required income number comes in handy.
Even though on paper some of these investments sound like a slam dunk, always remember that the only thing for sure about the stock market is that nothing is for sure.
“Wealthy People Give the Best Advice”
This one always gets my attention. To me, it’s the equivalent of someone getting all of their medical advice from a person who is healthy, or perceived to be healthy. Even though they themselves are healthy, that in itself doesn’t give them a license to practice medicine. Like your health or your fingerprint, your retirement is also unique to you and you alone. A wealthy person’s advice may be good, but their situation could be totally different than yours. Their wealth may have come not from investing or anything they particularly did but rather from a large inheritance that fell into their lap. My point is some of the wealthiest people don’t know the difference between a 401K and a 5k.
Another thing to consider when taking financial advice from a “wealthy person” is the possibility of perceived wealth which could just be a façade of that person’s need to “keep up with the Joneses.” You wouldn’t want to risk your retirement on a façade, would you?
Seek out the expertise of a professional financial advisor, and don’t leave your retirement to chance.
“Hot Stocks Make the Most Sense”
Revisiting the conversation with your buddy from earlier, the two of you also discuss a new tech startup that is on fire right now. This stock is white hot, and you want in on the action! Makes sense…right? Wrong. I know, I know you are yelling through your keyboards and monitors right now, but just bear with me.
I know you want in on the action, and this market, even with a correction, has been great. You may be noticing all of these amazing stocks that just seem to be soaring. Here is where I want you to remember Newton’s Law of Gravity: “What goes up, must come down.” These stocks may be hot now, but everything in the market drops at some point. Many people thought the tech boom would last forever, or that the real estate boom would continue, and we see now how those ended. Remember 2008? The point here is that equities historically outpace inflation, so let’s take the focus off what’s hot in the stock market, and instead turn our attention to what will allow you the best chance of reaching your goals.
Another thing to ask yourself here is if you are buying stocks while they are white hot, are you paying more for them or less? If you said “more” out loud to your screen then you are correct, and also the person next to you at Starbucks now thinks you are crazy for talking to yourself. To get back to my point, when these stocks are soaring high, you are most likely paying a premium price. However, if they drop in price, you now have an opportunity to buy what could be a great stock at a possibly more reasonable valuation. In other words, it’s on sale! Happy Dance!
I hope the takeaway here is the notion that you have a due diligence to yourself to seek out a professional financial advisor with whom you can build a relationship to help guide you on your road to retirement and avoid the pitfalls of retirement myths.