When it comes to investing mistakes for retirement, Ken Weber can help you avoid the pitfalls.
Ken Weber sees the retirement mistakes people make every day when it comes to their investments. They’re not going to be prepared and if they are, they’re not going to have enough money to last them if they live longer than they expect.
The 67-year-old Weber, the owner of New York-based Weber Asset Management, and the author of a recently released book, Dear Investor, What The Hell Are You Doing? Smart And Easy Ways To Fix The Mistakes You Make With Your Money, says he wrote it based on hundreds of conservations with individual investors over the years. It taught him a major lesson: “People can still be very smart and do some dumb things with their money,” Weber says.
When people reach 50, that’s when they seriously start thinking about retirement and how they approach it, Weber says. And that’s when they start making one of the two biggest mistakes that will cost them in their retirement—either they’re too aggressive or too conservative, Weber says. They don’t under what a proper risk level is, he says.
“With the too-conservative people, every time when the market goes down a little bit, they see the headlines and they get spooked. They pull back and stay away from stocks and anything they perceive from having risk. They’re going to fall behind in terms of purchasing power over the next 5 to 10 or 15 years.”
The other side of that mistake is being too aggressive, Weber says. They feel they haven’t invested enough during their working years, and now they’re trying to catch up. They’re either day trading or investing in a small number of stocks by following hot tips, he says.
“Both kinds can lose money,” Weber says. “The conservative people don’t lose in terms of actual dollars but they lose investment opportunity. Eventually, inflation will come back. There are always taxes to be paid. You have to stay ahead of taxes and inflation, and if you are just invested in what’s perceived as the safest, you lose purchasing power over the years.
Those that are too conservative tend to put their cash into a money market fund, their bank account or low-risk bond funds, Weber says. What they should do instead is have a mix of stock mutual funds and bond mutual funds if they’re 50 and older.
“You want some sort of reasonable balance of stock and bonds,” Weber says. “As an advisor, a big part of my job is figuring out where on the risk ladder an individual belongs. That’s part of how we earn our fee. Not only do we manage money but we have to figure out what’s appropriate for you in terms of risk and what will get you into your 60s, 70s, 80s and 90s.”
Weber says there’s no simple formula. In the past, there used to be a formula in which you subtract your age from 100 and that’s how much you should have in the stock market. If you were 60, the thought was you should have 40 percent in the stock market, he says.
“All of that is nonsense because everybody is different,” Weber says. “Everybody has a different nest egg size and tolerance for risk and a different family situation. Everybody is an individual and nobody is the same as anyone else.”
On the other hand, Weber says it’s fine to be aggressive if you ride through the downturns. The stock market is a roller coaster, and when clients ask him what he thinks they’re going to earn, he tells them he can’t guarantee them anything except volatility.
During the next 10 years you’re most likely to make the most money in the stock market in a good no-load mutual fund or funds in the U.S. stock market, Weber says. However, between now and 10 years from now it’s nothing but peaks and valleys, he says.
“It’s a roller coaster – up and down – and if you have the fortitude to stick with your program during the downturns, you’ll be fine,” Weber says. “I will guarantee when the market goes down the next time, the headlines will be screaming why it’s going down another 15 or 20 or 30 percent. The point is people get scared and they sell near the bottom, which is the worst of all possible worlds because you locked in the losses without giving yourself a chance to participate in the bounce back up.”
Weber urges people to do some basic research in how to invest in good no-load mutual funds where there’s no sales charge up front. People buy mutual funds through brokers and they are paying a sale charge they don’t need to do, he adds.
Weber suggests mutual funds to give you instant diversification instead of buying an individual stock or bond or even five or 10 stocks and bonds because then you have to watch those.
“You can’t buy them and let them sit there,” Weber says. “When you have a mutual fund, you have instant diversification. An average mutual fund will have several hundred different securities. If something happens to one or two or 10, you’re going to be OK. “
In addition, Weber says people should have a plan. They should sit down and figure out where they’re at now and where they think they will be in five, 10 or 20 years.
“It’s better to have some sort of plan than live day-by-day without giving any thought to what you’re doing,” Weber says. “It doesn’t have to be a formal written plan but at least sit down take stock in yourself and your situation. Don’t forget someone who is my age at 67 and if you’re in good health, you’re investing for decades.”
That goes back to the mistake that people make of being too conservative, Weber says. That’s especially true when they get into their 60s. The problem is what happens if they live to be 103. You have to make your money last, he says.
“Again, don’t be spooked by the headlines,” Weber says. “I just read a story about how the stock market has gone up for six calendar years in a row after the 2008-2009 crash. Half of the experts were saying get out of the market and stay out for years. Don’t listen to the experts. They don’t know any more than you know.”
A lot of people are far from being in the situation where they have a lot of money already saved for retirement and investment advice isn’t going to be enough for them. Weber says the statistics and surveys say there’s a lot of reason for worry that millions of Americans won’t have prepared properly for living longer, and they’re going to be living off Social Security.
“That’s a tough assistance. You can do it, but it’s not going to be easy,” says Weber who offers this advice instead: “It’s three words. It’s save, save, save. I don’t mean that facetiously. There are too many people that are not preparing for the future and don’t understand the importance of a dollar saved is a dollar earned. Money that you put away at 55 can grow over the next 20 years. If you start investing at whatever age, it’s better than not investing. The more you save the better off you’re going to be – end of the story.”