Risk, as we’ve seen, is unavoidable, but you CAN help yourself to understand how it works in relation to the markets. Once you’ve done that, avoid scaremongering in the media and put some time aside to set your own priorities.
Get Comfortable with Risk
One thing is for sure when it comes to investing in retirement: you’re going to need to get comfortable with risk. Chances are that if you’ve amassed decent pension provision over the year to get to the point of having assets to draw from in retirement, then you understand that risk is part and parcel of building wealth.
I’ve done tons of episodes on risk, including a podcast episode from the season these blogs are based on. Risk is a big subject, which is why I dedicated an Ultimate Guide to it, but if you’re a nervous investor, then you need to take two actions.
The first is to educate yourself. Lots of unease around things like market movements is born of ignorance, or to put it a bit more kindly, a lack of understanding. That’s not to say you’ll ever totally understand how markets work or anything like that, but if you’ve spent some time learning about how markets work and the different asset classes behave, then you’re unlikely to be surprised, which is half the battle.
Secondly, you’ll need to jump in and get wet, because nothing beats practical experience. If you haven’t already, read The Simple Path to Wealth by JL Collins. I did a review of the book and also interviewed Jim himself, which is a real highlight over the past ten years of MeaningfulMoney.
If you start your education with The Simple Path and keep listening to this show, as well as others like Money to The Masses and Maven Money, you’ll go a long way to giving yourself the grounding you’ll need to succeed.
Learn to Ignore the News
A crucial part of succeeding with investing, no matter what your stage of life is to ignore the news. That’s not to say you should be ignorant of what’s going on around you, but it is important to keep news in its place.
Remember that the purpose of news is not to inform, it’s to sell ad space and keep viewer numbers high. News is always biased, no matter where you get it from. For that reason, among many others, and that means you should treat it with massive suspicion. And if nothing else, we must ask ourselves the question when we see or hear something on the news: what difference does this make to my retirement investing timeline?
Chances are, it makes zero difference; none at all… And if that’s true, then why subject ourselves to information which has the potential to make us second-guess how we’re investing, potentially lead to anxiety and lost sleep. Do yourself a favour and be strict with your information diet when it comes to immediate-term events. With investing, it’s the very long-term that matters.
Set Your Priorities
If retirement was only about making sure you have enough to spend on lifestyle costs, then that would be one thing, but there is more to life than that, and these things will influence your investing approach and your timeline.
Firstly, ask yourself – do you want to continue building wealth in retirement? Do you want to build wealth for future generations or causes you care about that you can pass on when you’re gone, or do you want to spend down your wealth?
Or do you maybe want giving to be a part of your retirement spending approach, in which case you’ll need to factor in regular giving or milestone legacies to your cashflow planning. Your priorities in this regard will influence your investment plans too of course, as the cashflow ladder will have larger amounts at the different levels perhaps.
Making significant capital outlays will also affect your choice of the source of that money – pension or ISA? – and will change the dynamic of how your day-to-day income is sourced too. So it adds a layer of complexity, but that’s cool. So set your priorities for your retirement as they will affect cashflow needs and investing approach.
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