The Do’s And Don’t Of Investing For Retirement

Whether you’re handling your investments on your own or working with a firm to handle them, it’s a good idea to understand what goes into an investment strategy so you can be well prepared for how it impacts your retirement plan. A consistent and repeatable strategy for your investments provides the basis for how to invest, and gives your retirement planning structure. Here are some do’s and don’ts to help keep you track with your retirement investing.

Do: Have A Philosophy

Creating an investment strategy on the fly or as you go is generally a bad idea. When you’re relying on your gut instincts, you may make a poor decision in the moment. It’s likely better to have a philosophy for investing based on either academic research, your own personal beliefs or a core set of principles so that you have a framework for how you’d like to invest, and then you can stick to it. It’s also useful to write this down so you can refer to it in the future.

Do: Have A Repeatable Philosophy That Evolves With You

Your investment strategy needs to be repeatable, so that you can rely on it and use it as a foundation for your plans. You’ll need to be able to use it when the market is up just like when the market is down. This strategy needs to last for the long term, so while it’s a foundation it also needs to evolve and adapt to your needs. When new research comes to light, you may take it into account and adjust your strategy. You want to avoid chasing fads or anything that seems like a flash in the pan, so it’s a balance of being reliant on your strategy and plan while remaining flexible and willing to adapt to new research.

Don’t: Question Your Plan During Volatility

When the markets are volatile, it’s not the time to question your investment strategy. While it can be tempting to want to make changes to your investment plans while the market is down, it’s important to refer to your own plan and stay the course. Overreacting to the market can lead to rash decision making, which you might regret later.

Don’t: Expect Your Plan To Outperform The Market

Your investment strategy won’t always outperform the market and that’s alright- even the best investment plans underperform sometimes. It’s not a cause to abandon your strategy or scrap your whole investment plan. There are many external factors that play into the short term that impact your investment strategy, so it’s important to keep a long-term perspective when it comes to investing and analyzing how your investment strategy is working out.

Do: Keep Your Biases In Check

Understand that you have your own behavioral and emotional biases when it comes to investing, and you’ll need to keep them in check. Biases like confirmation bias can make you susceptible to seeking out data that just confirms your own thoughts and strategy, when it may not be in your own best interest. Try to challenge your beliefs and get multiple data points and opinions when it comes to creating your investment strategy, and work on staying unemotional particularly when markets can be volatile.

Do: Understand That Your Strategy Is For You

Your investment strategy is ultimately for you- not your next-door neighbor, your coworker, or your brother. It has to work for your risk tolerance, your goals and what you are saving for. You need to create an investment strategy that is aligned with you personally, and it’s not a one size fits all situation. With that in mind, you’ll need to determine what success looks like, so that you have your own metrics to measure success with your investments.