- Day trader. You may not call yourself a day trader, but you at least check your stocks everyday. You want to know whether your balance is going up or down and what the stock market in Japan is doing on a particular day. The problem is, if you are checking all of your retirement accounts and all of your stock portfolio (which if you want it to be diversified you need 100-200 individual stocks or 5-6 index funds) this will end up being a full-time job. The solution? Put 80% of your retirement accounts in low cost funds of your research and choosing that you would be comfortable holding for 5+ years or until retirement. Set a reminder to look at those accounts every 6 months to rebalance, and IGNORE them until then. Keep around 10% in cash for when you find that "awesome deal" and invest the other 10% in today's "awesome deal". That 20% is not going to make or break your diversification and you won't feel as compelled to sell or buy all of your retirement fund on a hunch. You will also only have to keep up with 2-5 individual stocks or funds and still maintain a diversified portfolio as well as the "fun" of timing the stock market.
- Set it and forget it, for years. There are some people who really don't want to look at their retirement accounts at all. They don't want to know how much they have in their account, they don't want to invest it actively. Maybe they are even getting to the point of no longer being sure of their ability to invest. The problem is, even if you set up the perfect portfolio initially, every portfolio does need to be rebalanced, and if you are still contributing, you may have a lot of cash in the account without auto-investment. For this investor, you should look into the "automatic" options your brokerage may offer. Most employer sponsored plans offer some type of auto-investing, auto-rebalancing, or even paid investment management. Consider all options and expenses carefully. If you have a non-employer sponsored account such as an IRA or Roth IRA, you could also consider an online brokerage with similar investing options, such as Betterment. They will help you set goals, rebalance, or even auto-invest for you. Depending on your total account balance, Betterment can provide goal setting, automatic portfolio rebalancing, automated deposits, a customized portfolio, and more for between 0.15 and 0.35% in annual fees. Sign up here for Betterment!
- Perfectionist. You spend hours setting up the perfect retirement portfolio, only to never actually invest in it. Or, you spend hours rebalancing every week, but you never complete the trade. The problem here is that you miss out on possible returns by never actually making those changes or investments. This one doesn't have an easy fix. You can try an automatic or active management firm, so you don't have to do it yourself. However, if you're a perfectionist, you probably won't trust them. Another option is to set yourself a time limit to work on your investments. Set your clock for one hour every six months to rebalance, or two hours to make your initial brokerage and trade decisions, and then ensure that you complete all your investments by the end of that time period.
- You don't want to spend hours of your time, because you don't have a lot to invest. If you're just starting out, the best option for you may be a target date account. These accounts do have slightly higher fees (in general) than doing it yourself, and you can't control the investments, but if you don't want to rebalance or set up your own portfolio of index funds, this could be an easy and affordable way to do it. Your target date fund choices are probably limited on what is offered by your specific brokerage or retirement plan. I suggest considering your own risk tolerance before investing and making an investment choice based on that rather than the "retirement date". Also, keep in mind that these funds do change over time, so if you are very close to retirement, but won't be taking any distributions, consider a retirement date 5-15 years further out in the future.
This obviously doesn't cover all of the possible investment strategies, but the biggest problem is coming up with the money to invest. My generation is the first one that has never expected pensions to pay for our retirement, and yet we aren't doing much saving right now either. Here's hoping this post will help with that!
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