Over time, these seemingly small factors could make a major difference.
Saving for retirement takes decades and demands the investment of significant amounts of your income. As this major effort unfolds, you should recognize that some subtle factors and seemingly minor decisions could end up making a sizable and positive impact on your financial future.
Your investment yield may be less important than the amount you save. Beating the S&P 500 feels great, but outperforming the market is not your foremost goal. Your real retirement saving objective is to accumulate sufficient assets – enough to provide adequate income in the “second act” of your life.
How much control do you have over your investment returns? The short answer is very little; market cycles, macroeconomic factors, and the behavior of institutional investors influence them profoundly. On the other hand, you have direct control over your savings rate. The more you pour into your retirement accounts, the more dollars you are giving a chance to compound.
As a hypothetical example, say two people have balances of $100,000 in their respective retirement accounts. Ariel earns a 10% annual return and puts $10,000 into the account at the start of every year for 20 years. David gets a 12% annual return from his account, but he never adds to its $100,000 principal during those 20 years. After 10 years, Ariel’s account balance is $434,638, while David’s is $310,585. After 20 years, Ariel has $1,302,775, while David has $964,629. Result: David falls behind, even while achieving a 2% greater return.1
Investment account fees can take a toll. Account fees are little things, but their impact over the years can be enormous on a retirement saver. This is why you may want to place your invested assets into accounts with minimal fees, annual fees of well under 1%.
Everyone talks about the several hundred dollars a year you can save (and invest) by swapping out your daily, flavored latte for a regular cup of joe, but you might as well keep ordering lattes. The money lost to lattes pales next to the money you could potentially lose to account fees. Demos, a public policy think tank, estimates that high expense ratios and administration fees on investments in a typical workplace retirement plan may cost a middle-class, dual-income household as much as $155,000 in retirement assets over a lifetime.2
What you avoid doing may help your effort as well. Resist the impulse to deviate from your long-term retirement planning and investing strategy without careful examination. Be wary of the emotional reactions to headlines or market disruptions, those little voices urging you to get out of the market or tilt your portfolio one way or another. Refrain from siphoning down the money in your retirement accounts and using those dollars for another purpose. Stick to your plan, ride through the turbulence, and avoid making a quick, impetuous decision that might do your retirement funds more harm than good.
On that note, remember that tuning out the noise is okay. The financial world is a noisy place, a place of non-stop trading and information flows. Any notable news development becomes a front page (or home page) item. It may seem risky to accept so much of this breaking news passively, with no reaction on your part as an investor or a saver – but passivity has its virtues. A little passivity – in your temperament, in your investment approach – may leave your retirement savings in surprisingly good shape over the long run, compared to the savings of someone who reacts to every temperature shift in the market climate.
Pay attention to these little things as you pursue big financial objectives. In hindsight, you will likely be glad you did.
About Jeremy Stanley
Jeremy Stanley is the founder of CRNA Financial Planning®. He has been providing advice and guidance for Certified Registered Nurse Anesthetists (CRNA) for over two decades. As a CERTIFIED FINANCIAL PLANNER™, Jeremy has met rigorous certification and professional standards set by the CFP® Board. He is committed to adhering to the principles of integrity, objectivity, competence, fairness, confidentiality, professionalism and diligence when dealing with clients.
Jeremy is also the author of The Wealthy CRNA and A CRNA’s Life After Anesthesia. The Wealthy CRNA features insights into becoming a financially successful CRNA and how to start planning for your financial future, and has been prior approved for up to 4 Class A CE credits by the AANA. A CRNA’s Life After Anesthesia serves as your financial roadmap for a smooth emergence into retirement. It reviews recent changes in the CRNA industry along with the new rules of retirement and the final steps of legacy planning. This book has been prior approved by the AANA for up to 2 Class A CE credits.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Jeremy Stanley is a financial professional with and Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Private Advisor Group, a registered investment advisor. Private Advisor Group and CRNA Financial Planning® are separate entities from LPL Financial.
1 - bankrate.com/finance/investing/saving-money-or-investing-more-important-over-time.aspx [6/25/16]
2 - forbes.com/sites/arielleoshea/2016/08/08/3-common-saving-mistakes-you-can-fix-right-now/ [8/8/16]