My Best Retirement Investment: My Investing Philosophy

statue-756624__180My best retirement investment has been my investing philosophy.  I didn’t always have one, and have only developed one by actually investing and having many lessons learned, by reading books and articles on the subject, and by “investing” in other investing plans (and yes, sometimes those plans were more like “schemes”).  I believe it is in your best retirement interest to have your own philosophy as well, even if you choose to hire an investment adviser to handle most of your investing.

In my previous posts I’ve stressed the importance of having discipline when it comes to spending and saving your money.  It is just as important to have discipline when it comes to investing that hard-earned money.  And, there is no shortage of people out there who will tell you how you should be doing that – you need to have your OWN philosophy that you use day in and day out, regardless of what others are saying and what the market it doing.

That isn’t to say you shouldn’t listen to them and make adjustments to your investments as appropriate and when necessary, but you should have a plan, and implement that plan consistently.  There is an absolutely HUGE amount of data and information available today, especially electronically via the internet, on investing, stocks, bonds, mutual funds, brokerage accounts, you name it.  It is really pretty baffling for someone new at this process.  While I would like to be so helpful, I’m not going to attempt to provide a lot of additional education on this broad subject.

What I can do, though, is let you know how I view investing for retirement, my investments and strategies, and why I’ve chosen them.  Of course there are a million ways that one could design their investment strategy and there is no one-size-fits-all approach – so I don’t recommend just copying my strategies and investments.  However, feel free to adapt anything you see here that is interesting and/or advantageous to your own situation.

In this post, I’m not going to get into specifics about individual investments, and will just stick to my investing philosophy.  I recommend you develop your own philosophy, and stick to it when investing.  My philosophy, which I outline below, is greatly informed by my retirement and life goals and my current retirement plan.  If you haven’t viewed my posts on these two topics check them out at the links above.

Defining “Retirement”

In my retirement plan, I define “retirement” as that point in time when I (meaning my wife and I) are able to live to end of life – AND adequately meet our retirement and life goals, with only the savings we have in the bank at that time, assuming normal, achievable rates of return on those investments.

In determining that point, we have factored in the cost of travel, hobbies and other retirement goals we have, and any additional amounts we might need to keep back to pay for unexpected expenses that are reasonably likely to occur.  We have also factored in all additional income streams that are likely to occur (Social Security, pensions, a conservative treatment of expected inheritances, etc.).

After retirement, both of us may keep “working” (see below) but at that point it is just because we want to.  Now that I’ve had success with my online business I’m no longer trying to market and build my previous engineering business.  While that job isn’t as fulfilling for me, because the pay is good, I do still take jobs offered to me IF I can work in without negatively impacting my affiliate marketing income (and believe it or not, that is possible now!).

Income Before Retirement

So, in order to get to the point where we can “retire”, my plan says I need to maintain my current income streams.  If I can manage it, I want to add to them, because that gets us to retirement sooner (and that’s because I monitor my spending and control it with the help of a monthly budget).  Therefore, I’m continuously working to keep increasing the income I receive from my affiliate marketing business.

Actually, from an outsider’s perspective it may be difficult to determine when I have actually “retired”.  I really enjoy my new home-based online affiliate marketing business, and I see no reason to stop it once I have officially “retired”!  I will probably just keep working my business, building it up further, communicating and helping fellow business owners and making money in retirement, for whatever purpose we want!

dollar-941246__180Cash

I also have about 6 months of “emergency” cash funds put away in non-retirement savings (again, I know almost exactly how much 6 months-worth is, because I monitor my spending closely).  However, I’m not actively investing this money, because I want to ensure it remains available if the unforeseen happens.  So I’m not trying to make an “income stream” out of this non-retirement investment.

I also have separate money saved in my Health Savings Account (HSA) for emergencies that aren’t covered by my health insurance, including deductibles and copays.  Income tax laws in the U.S. allow us to shelter a certain amount of our annual income in this way.  Every month I always put the maximum monthly allowable amount into this HSA account for that purpose, to ensure I get the maximum tax deduction.

Although my plan allows me to invest my savings in certain funds and other investments, I normally keep it in cash, or invest it very conservatively, to ensure it remains available when and if I need to use it.  A good amount of this money gets used every year so I haven’t needed to worry that I’m missing out on a lot of earnings from this investment by keeping it in cash.

Hopefully, my family and I will remain as healthy as possible and we won’t need to use all of the money I’ve put in each year, so it has become a significant savings account for us as well.   (This is also good because as everyone is aware, in the U.S., health insurance has been getting more expensive every year.)

Non-Retirement Investments

Beyond the cash savings listed above I have education savings (529) accounts for my kid’s education, which they are using now because they are in college) and a relatively small passbook-style savings account that I put a few hundred dollars in each month just to save up for things like weekend trips, bigger gifts and other non-regular expenses.

I don’t keep a lot of money in non-retirement investment accounts, because the taxes on the gains when you sell them is high, especially if they aren’t held very long (long-term vs. short-term investments).  I like to be able to use my non-retirement money for what I want to, when I want to, and not worry about capital gains taxes (and keeping track of cost basis and all of that) so I pretty much just stick to earning a very small amount of interest on a small amount of money kept in savings accounts.

Retirement Investments

Then, with my retirement investments, I’m just trying to earn a return on my investment that meets or exceeds the expectations that I’ve laid out as reasonable to achieve in my retirement calculator planning tool.  This can be done pretty easily using a retirement planner, who can build an investment plan and strategy around your goals for you.  However, as I explain in my retirement planning page, this can be an expensive way to go.

As I enjoy being close to my finances, knowing what is going on with them, and doing my own investing, I manage my retirement investments myself.  This is the cheapest way of course, but if you are not disciplined here as well you can lose much of your money.  I have spent years trying to build up my portfolio any way I can and have learned a lot about it.

So with this strategy I’m not trying to hit any home runs, “beat the market” or whatever.  I’m only trying to average a return on investment that is very achievable based on my historical ROI’s.  While I haven’t been super successful as an investor (otherwise I would be retired already!), I can trust myself to be prudent enough with my investing to meet the conservative return requirements I’ve built into my retirement plan.  This has been true for the past 30 years anyway!

I have a majority of my retirement investments in stocks and stock and bond mutual funds, including investments for growth now and income, and some in special purpose funds (like gold and in utilities funds).  Those last two investments are somewhat volatile and go up and down with whatever the market thinks the Federal Reserve is going to do (or does) with interest rates.  But that is not an issue for me because I don’t try to trade in and out of these investments, I just follow my plan.

“Exotic” Investments

With one exception, I don’t have or use any exotic or derivative investments, I don’t short sell stocks or anything else, and I don’t use margin accounts.  I have lost a LOT of money in the past trying to time the market, and using naked options to try to “make a killing” all at once in the market.  That was in my younger and more foolish days.  I know I’m alone in making this mistake!  So needless to say I don’t recommend you use any of these types of investments (unless you are a trained professional or something)!

The one exception to this is that I do sell covered call options from time to time to hedge (protect) some of my larger stock investments, to help boost my returns and to help ensure a return on these.  I’m not going to explain this strategy here, other than to say that this is one of the more common and conservative ways to use derivatives, and I don’t use them in a way that causes me to lose money.  I’m just telling you about this just to be fully truthful – PLEASE know that I’m not going to try to sell you on any of these investments (or any investment) on my website!!

Investment Companies and Services

I work with only one investment company to manage my retirement plans.  This company manages a large range of funds, and also has a brokerage that allows me to invest in individual stocks as well, with competitive commission rates and fees.

Over the years I’ve had a number of jobs with different companies, and have accumulated a number of (sometimes small) 401k accounts and pension accounts.  I have rolled all of these over into accounts maintained at this one company, mostly for convenience and to cut down on the amount of mailings/paperwork/etc. that you have to deal with when working with multiple investment companies.

So this one investment company has plenty of variety and experience in just about any kind of investment available that I might be interested in.  I’m not providing the name of it here because I’m not trying to promote them, and there are many companies like them out there.  As far as a recommendation, I would just stick to bigger name companies and compare them based on their products, rates and services.

Comments

If you have comments feel free to leave them below!  Let’s keep it civil though.  There are already far too many rants and flames on financial bulletin boards that don’t help anyone.  Nobody enjoys being told how stupid they are, and retaliatory remarks are totally unwelcome.  We are all just trying to do what we can to help each other be successful!

Or, feel free to check out my Wealthy Affiliate profile page and leave me a comment there.

2 Comments:

  1. Great thoughts JChrisA!

    I am in complete agreement with you, and what you have mentioned are mantras of mine that I’ve lived by for years. Unfortunately (in some ways), I became financially aware after already having plunked down the money for a “large” house 🙂 and we now have roots and are too comfortable there to move!

    Your website http://tinyhousesforall.com/ is super interesting – and a great idea financially for those that want to take advantage of it. I checked it out and am excited about the concept – truly powerful!

    Best of everything to you with your business, and thanks so much for the comments!

    Randy

  2. Hi, Randy!

    I really enjoyed reading the details about your retirement investment philosophy. Having been in the stock and commodities markets years ago, I can really relate to your ups and downs.

    Although there have been times where I have made good money, there have also been quite a few times when “sure things” didn’t perform good enough, or perform at all.

    My wife, Carla, and I now operate in a completely different mode day to day…we have the budgeting thing well rehearsed, and have had for years, now.

    Our motto (what we do and what we teach) is simple:

    1. Own what you drive…ditch the auto installment lifestyle, and by solid used vehicles you can afford…have routine auto maintenance built into your budget…save for replacement vehicles and major repairs.

    2. Get out of debt and stay out of debt…no credit cards. Yes, I know, the first thing folks tell me is how they always pay it off every month…well, if that’s the case, then why not get one month ahead and use a debit card?

    It’s awfully tempting to use a credit card in a moment of weakness on those just couldn’t pass up deals…or, during the holidays! 🙂

    3. Own where you live…for more about that, you can visit our website.

    Just wanted to say how much we enjoyed finding your website. Keep the intelligent conversation going, as there are many out there needing all the help they can get!

    Respectfully,
    JChrisA

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