Will You Be Able to Retire?

If you’re like me and have experienced two crushing stock market corrections in the past 30 years and you’re now looking at today’s stock market volatility, you might be wondering if you’ll be able to retire some day.  There’s no question it has been challenging to build long term wealth in the stock market as an individual investor, since all the odds are stacked against you, competing against program traders and institutions with more resources.  Timing never seems to work.  Buy too late, sell too late, lose money.  If this sounds familiar and you are tired of losing money, my very simple strategy might interest you.

First of all, I try to contribute as much as I can to my 401(k) account each pay period.  If your employer matches your contributions, that’s free money and you should at least contribute enough to get the match.  I have found that saving money automatically and putting it out of reach really works, especially if you have trouble controlling your spending.  The annual contribution limit for 2018 is $18,500.  If you’re 50 or older you are allowed to make additional “catch up” contributions as well.  The limit for catch-up contributions in 2018 is $6,000.

Secondly, I invest like a retiree and try to keep 20% or less of my portfolio exposed to stocks (split roughly evenly between different classes like international and US, small cap, large cap, etc).   80% of my portfolio is in short term, fixed income and bond funds.   It’s very conservative, but I have virtually eliminated big volatility from my portfolio.  I’m a believer in “slow and steady wins the race” and the power of compound interest.  Over time, a portfolio can grow nicely with a good rate of interest reinvested regularly.  For example, $10,000 invested at 4% will grow to over $22,000 in 20 years - more than double.   Patience really can pay off.

Finally, I periodically adjust my balances to maintain my desired diversification. Usually quarterly is enough.

Best of all, I don’t worry about what the stock market is doing anymore.  I can just relax and focus on other things besides my retirement savings.

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