Are you thinking about retirement? What advice have you received about survival in your retirement years? I would guess that 95% of you have heard this advice: “Invest a consistant amount of money into the market each year so that you’ll have a lump sum of over a million dollars at retirement. This plan will make you rich.” Am I right? In this post, I’m going to tell you why you might not want to take the Lump-Sum Retirement Fund Approach.
In order to continually come up with new concepts for this website, I often visit my local library and read up on personal finance. Lately, I have been interested in retirement planning, and I’m shocked at how similar all of the advice is! ‘Work a job, save 10-15% of your money for your retirement fund, and sit back and watch it grow.’ This advice is given by Suze Orman, Dave Ramsey, David Bach, and many others. Why, when so many have found themselves with a depleted retirement fund from the sinking stock market, would this advice still be taught today?
When I was younger, I used to work at a high-end golf course in the summer. I loved to work outside, I had a passion for golf (and still do… just ask my wife), and I especially enjoyed learning how each of the members acquired their wealth. Many of these wealthy individuals made quite a lot of money during in their careers, and then invested a large portion of their money in the stock market for their retirement (as we are all taught to do). This was all well and good for a while, but in 2007 and 2008, many of these individuals dropped their membership – their investments were losing money and they could no longer afford to live a life of luxury at the golf course.
Why is the Lump-Sum Retirement a Bad Idea?
If this had been your only plan of attack for your retirement years, you may be in trouble. Why? Here are my reasons:
- A Static Method for a Dynamic World – Why is it that many of us place a sum of money in the market, don’t pay attention to it, and then expect it to grow exponentially without effort? The stock market is a dynamic market with many factors. If we don’t continually evaluate our portfolio, it’s very easy to lose money in the market today.
- It’s Not As Fool-Proof as Many People Thought – For many years, people have noticed that the market has consistantly gone up in value. They figured that as long as they kept shoveling money into the market, profits would keep coming out. Many of us are not old enough to know first-hand, but that’s exactly how the Great Depression started. With our economy in its unstable state, a dependence on the market (and only the market) can be a very dangerous decision.
- Retirement Funds Aren’t Really That Diversified – Yes, you may have stocks in energy, medicine, minerals, currency, and real estate companies, but is your money really diversified? In each case, you just own a small share of a company and you have no impact on whether that company fails or succeeds. Why not diversify your money by investing in some real property? Or maybe a side business? Create some cashflow that you could potentially sell someday.
- The Only Time You Can Enjoy a Retirement Fund is When You’re Retired! – While you may have a great retirement fund set up, you most likely still feel poor at the moment. Setting up future investments this way, you are not allowed to enjoy life until you’re 60 years old! Personally, I’d rather enjoy my freedom now. Why not start a business that generates a tremendous amount of cash flow that I can use now? Exotic trips, hiking excursions, and cross-country travelling – I’d much rather do this while I’m still young!
- Stock Market Crash of 2016 – This prediction is made by Robert Kiyosaki, and quite recently, many others are joining in this prediction – some with a more recent date. With all of the baby boomers retiring, plus the tremendous debt of the United States, the economy is going to be struggling for a while! A large sum of money in the stock market could lose most of its value in a hurry!
How Should You Invest?
Rather than blindly placing 100% of your investment income into your 401(k), why not diversify a bit? Start a small business on the side and create some additional cash flow. The extra money could be used to grow the business further, to save for a larger investment, and to have some more fun in life!
Real estate may not yet be at its low, but it’s becoming a great time to buy. If you’re looking to invest in property, start learning the ropes now! Get some books from the library and find someone that’s currently in the business. Opportunities will soon be coming your way!
Do you currently invest a portion of your money in something other than the stock market? What is it? A side-gig? Real estate? Let’s talk about it!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.