Too many people think of investing when they think of retirement planning. It distracts them from the issues that should be the focus of most of their time and energy.
When people first learn what I do, most of them soon ask me questions about investing and the markets. It doesn’t seem to matter what age they are. Investing seems to be the primary focus of their retirement planning.
Most people spend too much time and energy on investing and not enough on other personal finance matters. They devote their limited resources to thinking and worrying about the markets and especially focus on short-term moves, trends, and news. Some compound these mistakes by merging their political views with their investments, buying or selling based on whether they agree with the policies of the President or the majority party in Congress. Presidents have remarkably little lasting impact on the markets and economy, and the impacts they have often take years to be felt.
Another mistake, that is a topic for another day, is they also often think that investing means being either in stocks or in cash. They’re trying to time entries and exits in the stock market and don’t spend much time considering other investments or building a diversified portfolio.
In the end, people who spend too much time worrying about the markets make one of two classic mistakes. Some make too many trades in their portfolios, increasing costs and taxes without improving their investment returns. The others are paralyzed. They never make a decision or implement a portfolio change despite all the time and energy devoted to considering the markets.
In the meantime, the rest of their personal finances are neglected.
The smarter people, when they learn what I do, ask questions about non-investing aspects of personal finance. The questions depend on their situations, but the questions might cover estate planning, converting IRAs, Medicare, Social Security, or other issues.
I say these are the smarter people, because they know there’s a limited amount an individual investor can do to increase investment returns. The markets are going to do what the markets are going to do, and the individual investor can’t affect that. The smarter people also know that if they make timely moves in and out of stocks it’s largely because of luck and isn’t likely to be repeated consistently. Some of them put together portfolios that they plan to hold for the long term, regardless of what’s happening in the markets. Others will increase and decrease their positions in particular investments at times. But the changes aren’t made frequently and don’t include all-or-nothing bets for or against stocks.
Often, the resources devoted to personal finance issues other than investing have direct, substantial, and immediate effects on your bottom line. You receive a direct benefit by taking an action that reduces income taxes. You can avoid leaving money on the table when claiming Social Security benefits, managing an IRA, choosing a Medicare option, or taking other retirement-related actions. Of course, your family’s after-tax wealth is improved when your estate plan is up to date and complete.
I’ve learned that most people don’t realize they’re losing money by neglecting these other areas of their retirement finances. When the investment markets decline, they see the effects the next time they look at their account balances. But many people never realize they made a bad decision about Social Security, Medicare, income taxes, managing their IRAs, or all the other aspects of their retirement finances.
I’m not saying to neglect your investments. It’s important to develop a good investment strategy for your situation and that will help meet your goals. But the bulk of your time is better spent on matters on which you can have a direct impact. When aggregated, these other issues are likely to have a bigger effect and be a better use of your time.