Saving for retirement can seem like a beast, especially when you get started late in the game, or circumstances set you back. It can seem that no matter what you do, your retirement plan doesn’t matter. And do some extent, that is true. There are things you can control and things you can’t.
There are basically three main reasons your retirement plan doesn’t matter:
- You can save what you can save.
- This is something you can control, but, if you put $100 away a month, your savings increases by that $100, unless you increase that amount, nothing is going to dramatically change.
- We are at the mercy of our investments.
- Performance is based on the stocks in our portfolio. We can’t control the market, but we can control how we react.
- Some people sell when things go down.
- We don’t sell when things are down. Our mantras are diversification and rebalancing:
- Diversification – Own lots of types of investments – big stocks, small stocks, international, medium and short-term bonds. Use mutual funds.
- Rebalancing – Sell things that have performed well, buy things that have done poorly, to maintain our allocation – e.g. 80% stocks, 15% bonds, 5% cash.
- We don’t sell when things are down. Our mantras are diversification and rebalancing:
- Some people sell when things go down.
- We’ve got some time and things always turn around. The shares we own don’t change, what goes down, will go up.
- If things don’t turn around, well there are probably bigger things to worry about if this is the case.
- Performance is based on the stocks in our portfolio. We can’t control the market, but we can control how we react.
- Timing – Short Term vs. Long Term
- We did pretty well this month. But it wasn’t because we increased the bi-weekly amount we contribute or because of awesome stock performance…I mean some of it was performance, but mostly it was timing:
- June is a tree paycheck month for Kelly. That means, despite the fact that we contribute the SAME amount every two weeks, there’s an extra deposit attributed to this month, just because of the spacing of the weeks. Nothing really increased any more than expected, it’s just timing in the short-term.
- June is the end of a quarter, so Kelly’s employer submitted their matching for her contributions. It is a known amount, it just happens to get deposited in this month, so it makes it look like we did really well, for this month. Again, short term.
- We did pretty well this month. But it wasn’t because we increased the bi-weekly amount we contribute or because of awesome stock performance…I mean some of it was performance, but mostly it was timing:
If you look at our actual stats for the last two months, you can see this short-term vs. long-term view:
- In May, our Net Worth Increase was $350
- In June, our Net Worth Increase was $25,000
If we only looked at May, we might be depressed, but we have to realize that not every month is going to be June either. Ups and downs…that’s the game.
All that being said, you’ll see that your retirement plan doesn’t matter BUT it does. Just because there are things we can’t control, doesn’t mean we shouldn’t save at all. This is a long game. Realistically, no matter how much planning we do, the market will rise, and the market will fall, but the only thing actually ‘bends’ is how you save and react.
For a more fun version of these points, we recommend a journey down the the rabbit hole…watch the video 😉
Happy Living,
Steffan (& Kelly)
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