Investing really isn’t rocket science, despite many in my own profession thinking that they have a kind of magic secret sauce that only financial advisers can understand and that lay people will never grasp. There’s a soapbox video in this that I’m itching to make; I’ll just have to reconcile myself to being a pariah amongst my peers afterwards!
What is investing, really? It’s buying and holding growth assets for a long period. It’s controlling costs, including tax, because they can compound negatively, affecting your returns significantly over time. Aaaaannd, that’s about it.
Plenty of people will try to put more on it than that, but if the most successful investor of all time – Warren Buffett – thinks that most people just need to buy index trackers, then that’s good enough for me.
Now, I did a two-part ultimate guide to investing last year, which you can find here and here, so there’s no need to go over that ground again. But my contention is that investing in retirement differs from investing in the accumulation stage primarily in the arena of organisation, rather than the basic mechanics of making money.
Different assets – things you can buy to make money – behave differently. Some are clearly growth assets. Some are more income focused and some are a good blend of the two. Some are designed to minimise volatility, and those will serve us well in retirement too.
Different wrappers have different tax benefits and so can serve different purposes at different times. Giving our money the best chance of surviving a long retirement, then, is about making sure we take money from the right assets from the right wrappers at the right time – that last point is the most important: AT THE RIGHT TIME.
Timing is very important in retirement. I don’t mean timing the market, which is always impossible, but the timing of withdrawals and the choices of place that we take the money we need out of our portfolio – these are huge determinants of our success or otherwise. Not only do we need to understand this, we need to build a framework for our investments that make this as easy as possible to administer on an ongoing basis.
The Law of Diminishing Returns
Before we get more practical, I want to address what I’m going to call the law of diminishing returns, which I see manifested all the time. I tend to attract people to my podcast who are very bright and perfectly capable of running their own portfolios.
I love that about my community – it makes for challenging conversations, I can tell you! These people very often are actually interested in investing; it’s a hobby for them very often. And like any interest, it can easily become all-consuming. We take in more and more information about it, seeking to learn as much as we can. While a good idea in principle, in practice I see this lead to two very clear dangers.
Firstly, we can begin to obsess over details which, when applied can make very little practical difference, and yet they take on a weight in our thinking which is far more than they should have.
I’ve had conversations with listeners of my podcast obsessing about single-figure percentage differences in their allocation to the UK market versus, say, the US. Or even going deeper still, and lying awake at night worrying about whether they allocation to emerging market debt is too high at 4%.
I remain convinced that unlike, say, golf where hours on the driving range and the course presumably lead to more consistent and predictable results, the markets promise no such thing. Ultimately, there is no ‘right’ or perfect asset allocation and endless worrying and tweaking is unhealthy and will achieve very little.
Secondly, too much obsessing over minutiae, trend line interpretation and general financial navel-gazing, usually leads to inertia. People constantly are looking for that bit more information before they take the plunge, that bit of clarity they feel is lacking before they commit. They never find it.
I met one lady whose office behind her on the Zoom screen was full of investing books, all of which she purported to have read, and yet she was, by her own admission, too afraid to invest, which is why she contacted me.
Investing remains very simple for most of us. Please do not try to over-complicate it – you’ll do so to your own detriment in the vast majority of cases.
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