Business & Technology
Dan Solin's The Smartest Investment Book You'll Ever Read, in clear and concise chapters, outlines a plan for investors to take control of their nest eggs well before they expect to withdraw from them.
When the market crashed in Fall 2008 and the Dow's downward spiral continued for weeks and months, countless investors on the verge of retirement found their nest eggs hollow. After years of what they believed was prudent investing, what did they do wrong? With retirement savings drastically depleted, what could they have done differently?
Dan Solin has the simple answers. Author of the international bestsellers The Smartest Investment Book You'll Ever Read and The Smartest 401(k) Book You'll Ever Read —books that fundamentally changed the way people invest —Solin returns to offer the concise and accessible advice that has made him one of AOL's and Huffington Post's most popular financial columnists. In The Smartest Retirement Book You'll Ever Read, Solin asserts that the state of the economy should have no bearing on anyone's financial security or the success of their retirement portfolio. Solin tells investors what Wall Street does not want them to hear: Don't trust Wall Street.
Solin's advice, supported by several academics and researchers, calls for a diversified portfolio made up of domestic and international index funds and bonds —guaranteed, over the long term, to yield high returns —at costs that are much lower than actively managed, individual stock funds.
Solin's insights will ensure that investors:
- steer clear of scams that rob them of their hard-earning savings;
- avoid the common mistakes that can leave their spouses impoverished;
- discover financial lifelines no matter how desperate the economy;
- and become confident that their money will last longer than they do.
Read an Excerpt from The Smartest Investment Book You'll Ever Read
Tax Efficiency
When judging mutual funds, investors look at total returns. But performance statistics can be misleading. When investments aren't sheltered in retirement accounts, after-tax returns are the key feature.
Taxes can mangle the returns of actively managed funds. Too many portfolio managers trade stocks with little regard for the tax consequences that are borne by the investor. Index funds are considered paragons of tax efficiency because there is little turnover in their portfolios.
John Bogle, the former head of the Vanguard Group, conducted a study that illustrated how devastating the tax bite can be for actively managed funds. Over a sixteen-year period, Bogle concluded that investors kept only 47 percent of the cumulative return of the average actively managed stock fund. Indexers kept 87 percent.
Can you afford to leave that much of your money on the table?
Minimal Cash Holdings
Large cash holdings reduce returns in a rising market. Index funds typically have less cash holdings than actively managed funds because they don't have to keep cash on hand to time the market. Index fund portfolios stay focused on meeting the returns of the index.
What's the Point?
Investors who index achieve superior returns.
Chapter 58
Ten Golden Rules
Practicing the Golden Rule is not a sacrifice; it is an investment.
— Author unknown
The Ten Golden Rules that I've put forth here won't work for everyone, but they should be considered by all investors, regardless of your age, whether you are currently planning for retirement or are already retired.
- If you have an account with a brokerage firm, close it. I can't think of any reason to do business with a broker. They can't pick outperforming stocks or mutual funds. They can't time the markets. They are expensive. They are not fiduciaries.
- Never buy an individual stock or an individual bond, with the exception of Treasury bills. Your expected return with individual stocks and bonds is the same as an index of comparable stocks or bonds, but your risk is vastly increased.
- If you need help coming up with a financial plan, use a fee-only financial planner (or a certified public accountant) who charges an hourly or a fl at fee and who limits advice to preparing a plan and answering your questions.
- If you need assistance in making investment decisions, use a registered investment advisor who focuses on your asset allocation and who recommends investing only in a globally diversified portfolio of low- cost index, passively managed stock and bond funds, or in an immediate annuity, where appropriate. Ask the advisor to confirm in writing that she will act as a fiduciary in all her dealings with you.
- Be sure your funds are held at an independent, well- known custodian, like Charles Schwab, Fidelity Investments, or TD Ameritrade. Make all checks payable only to the custodian and ensure that you receive account statements directly from the custodian.
- If you are investing on your own, use a well- known fund family, such as Vanguard, Fidelity, T. Rowe Price, or Charles Schwab. Consider one of my recommended portfolios (see Appendix B).
- Avoid alternative investments like hedge funds, limited partnerships, and private equity deals.
- Add up your monthly expenses. Deduct the amount of your Social Security and other income you can count on. Consider purchasing an immediate annuity directly from a low- cost provider such as Vanguard or TIAA-CREF for the difference. You can now sleep well knowing that you have enough money to meet your monthly expenses.
- Keep funds sufficient to meet two years of living expenses in an FDIC-insured savings account, a certificate of deposit, Treasury bills, or a money market fund from a major fund family.
- Prepare a will. A will is the first important step in estate planning.
Sometimes intelligent retirement planning can seem overwhelming. However, these basic rules are really quite easy to implement.
You now have the knowledge to do it. Don't let anyone cause you to stray from the path toward a successful retirement.
Read other books by Daniel Solin:
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