Everything You’re Being Told About Saving & Investing is Wrong, Part 2
The comments below are an edited and abridged synopsis of an article by Lance Roberts
He says that article comments are generally full of excuses as to why saving money and building wealth can’t be done. The general thesis is that, as long as you have social security (which is threatening payout cuts over the next decade) and/or a pension (which only applies to 15% of the US), then you don’t need to save as much.
But you don’t want a retirement based on things that are underfunded, subject to government-mandated changes, and out of your control. In other words, when planning for an uncertain future, hope for the best, but plan for the worst.
We can all get by on less, in theory. But an examination of retirement savings statistics and the cost of healthcare in retirement (primarily due to poor healthcare habits earlier in life) doesn’t necessarily support those who say that saving less and being primarily dependent on Social Security is optimal.
Some suggestions for investing: You can’t save if you don’t have positive cash flow; you can’t have positive cash flow without a budget; get off social media—it leads to overspending and keeping up with the Joneses; get out of debt and stay that way; if you can’t pay cash for it, you can’t afford it; expectations for future returns should be adjusted downward; the potential for front-loaded returns going forward is unlikely; controlling investment behaviours and emotions is critical; future inflation expectations must be carefully considered; account for variable rates of returns in your plan rather than average or compound; understand risk and control drawdowns in portfolios during market declines; save money regularly, and invest when reward outweighs the risk; remember that time is your most valuable commodity, and is the only thing we can’t get more of.
Robert discusses interest (compound and average are not the same thing); variable rates of return change the game; and things you can do to succeed.
Everything You Are Being Told about Saving & Investing Is Wrong – Part I