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How To Best Invest For Retirement

This topic that we're addressing in this article is one of the most difficult questions that people have to face in retirement, because it's a highly personalized process. And that is how to best invest for retirement. There are so many products for people to consider. First there are the insurance products, which are the annuities. Then of course you have the securities, mutual funds, ETFs, stocks and bonds. Finally, you also have the alternatives like precious metals, real estate, private equity and hedge funds. When someone is looking at all these options and deciding how they are going to invest their money, it can become overwhelming. There are so many decisions to make, and so many ways to go about handling your money.

One of the things that we like to do to make these difficult choices is focusing on what we believe to be true about investing. We have some tenets that help guide what we're doing:

  • Diversification
  • Risk
  • Taxes
  • Emotional tolerence/well-being
  • Expenses


I recommend you watch this video I recorded that goes through how to avoid running out of money and increase your retirement income. You are also invited to set up a short 20 minute free no cost and no obligation Retirement Ready Success call by clicking here. In this short call we will

  • go over where you are now,
  • where you want to be,
  • and I will share with you some of the strategies I use with my clients to help them achieve financial freedom and peace of mind.

Let's take a closer look at each of these and how they help determine the best way to invest for retirement.


We know that diversification is an ancient principal that 

King Solomon spoke and wrote about thousands of years ago, when he said in Ecclesiastes 11:2: divide your wealth seven, or even eight ways because you don't know what danger may fall upon the earth. King Solomon is one of the wealthiest (estimated $2.2T net worth) people that's ever walked the face of the planet, and he was a man of incredible wisdom. 

In fact, at one time he acted as a judge, ruling on many of the issues and arguments that would come in through his region. 

Diversification provides for a more smooth performance, and it helps people avoid big losses. Nothing hurts a portfolio's performance more than big losses. If a portfolio drops 50%, it has to go back up 200% just to break even. For example, you had $1M and it goes down to 500,000, to get back to $1M you have to double your money, or go up 200%. We just know that diversification works. It should be done in an intelligent way avoiding overly complex and excessively expensive investments.


The next thing that we want to look at is how much risk a person needs to take in order to achieve their goals. This is a very important factor. If a person can put their money in a Treasury bill, getting paid less than 1%, and still achieve all of their financial goals and live comfortably, that will have a tremendous impact on how we do the planning. If someone needs to generate better returns, and the Treasury bill's less than 1% won't be sufficient in order to make it to the target date or the projected date of the year of death, that weighs in the planning as well. Usually we go way past that, of course. 

But it's not just about the risk. You also want to be a wise steward. You don't want to just take your money and hide it in the ground, where it'll just sit without earning interest. If a person doesn't need to take much risk, there's still the question of how they can be a good steward of the money that they have, while minimizing the risk. There's ways to do that as well. You can minimize the downside risk so you don't have to participate in the large market drops, but you can still be invested in a way where you can still grow if the stock markets do go up. 

Most people that we work with will need some inflation protection if they want to have a comfortable retirement and make this the best phase of their life. As we know, the dollar continues to devalue every single year, as the government continues to print money. This is just a given: real estate will go up. Healthcare will go up. Education costs will go up. Gas will go up. Food will go up. Clothing will go up. Everything in our whole economy is going to go up in price, and so you need that inflation protection just so your purchasing power can stay the same as the day you retire. People are retired for 20 and even 30 years, these days, so this is even more important to consider.


Finally, we'll look at tax implications, another very important and often overlooked consideration when investing for retirement. The way that you invest your money, even if it's inside of an IRA, will have tax implications. If you have mutual funds inside of an IRA, those individual mutual funds still have tax cost ratios, and so do the exchange-traded funds. Although you personally don't have to pay any taxes on the income or gains inside of your IRA, those mutual funds do. For example, if you buy a mutual fund inside of your IRA, the tax cost ratio could be 2%, 3%, or 4%. That mutual fund has to pay on the profits that they generate, because they're doing too much trading, particularly short-term trading. The turnover percentage will give you the ratio of their buying to selling in a given year. For example, 50% would mean that they're selling half of the stocks or bonds that were in the portfolio that year.

The other thing to do when planning how best to invest for retirement is look at the type of interest that's going to be created inside of a taxable account. Any interest that's created is going to be taxed at a higher rate than say, dividends and stocks. So the tax implications of how you choose investments are tremendous, and can greatly decrease the amount of money that you have and the amount of money that you gain during retirement if you're not weighing those implications heavily in your decisions. Now, you don't want to let the tax tail wag the dog, so to speak, but there's no doubt that planning wisely for taxes with your investments is important so that you know what to expect.

Emotional Tolerence 

The next thing to consider when deciding how to invest for retirement is the impact the investments will have on your emotional well-being. Here at Third Act Retirement Planning, we believe that each portfolio should be personalized to our clients, and a big piece of that involves their emotional tolerance. Life is too short to not be able to sleep at night because your account has gone down more than you were able to emotionally handle, and everybody has a breaking point. Everybody has a point where their money could go down so much that they would feel terrible, and that will impact them in many ways. The relationships with the people that they love the most will suffer, and it could also negatively impact their health. Stress and anxiety have been shown time and time again, in so many studies, to impact people's health. This particular planning topic is one of the most important when thinking about how to invest for retirement. You want a portfolio that is going to give you peace of mind, not anxiety or fear. Don't overlook your own comfort levels or let anyone talk you into something that you know will cause undue stress.


Controlling expenses is another important aspect of investing for retirement. There are so many expensive securities out there, including mutual funds, ETFs, annuities, private equity, and hedge funds. These expenses, based on research that we've seen, can lower the overall returns of a person's portfolio—the money that they've worked their whole life to save. You really want to make sure that you lower the expenses of whatever it is that you're buying. One good way to do this is to work with a family planner, because they don't work for commission. They're able to help you find the lowest cost financial products to meet your goals, because you are the only person who is paying them. You're paying that financial planner directly. They are not getting compensated by any other entity, person, or business.

These are the five tenants that I consider to be the most important factors to keep in mind as you are deciding how to best invest for retirement. They're the things that we help every single one of our clients with, because of the impact that we know they can have on their money, both in the short-term and the long-term.

Click here to watch my Free Video Presentation that Reveals...

How To Avoid Running Out Of Money In Retirement AND Potentially Increase Your Income In Retirement... By Making ONE Simple Change To Your Finances! You will learn:

  1. How one simple change to your finances can increase your retirement income
  1. How one simple change to your finances can help you avoid running out of money
  1. How to do all this without needing to invest more money or spend more time on your finances.

Or you are also invited to set up a 20 minute free no cost and no obligation Retirement Ready Success call by clicking here. In this short call we will

  • go over where you are now,
  • where you want to be,
  • and I will share with you some of the strategies I use with my clients to help them achieve financial freedom and peace of mind.