Lie #3 Buy and hold This isn’t a lie, per se, but a dictum that people took too literally. Buy and hold is an investment philosophy that says once you purchase, say, a stock or a mutual fund, you’re in for the long term. Years, rather than months. But it never meant “Set it and forget it,” says Miami financial adviser Cathy Pareto. It also never meant “Buy and ignore,” which is, unfortunately, what many people did. They sank their money into individual stocks—often company stock they’d invested in through their 401(k)—and buck-led up for life. So the new “buy and hold” is “buy and monitor.” Follow enough financial news to know when there’s a fundamental problem with one of the stocks in your portfolio (a management change, a lawsuit), and then reevaluate the investment.
Also, following a buy and monitor strategy doesn’t excuse you from rebal-ancing your portfolio. When you in-vest initially, you should be making a deci-sion about your asset allocation: the percentage of your money that you want to have invested in stocks, bonds and other assets. As always, the movements of the mar-ket alone can be enough to throw those allocations out of whack. If the stock mar-ket races ahead, for instance, your stocks will suddenly make up a larger percentage of your portfolio (and put you at more risk than you’d intended).
To rebalance, sell some of those winning holdings and plow the money back into safer asset classes. How much work does this monitor-ing take? Not much. You likely won’t need to rebalance more than twice a year.
Lie #4 Your adviser is taking care of you You didn’t have to lose your life savings to a crooked planner to learn that nobody cares about your money more than you do. I’ll say it again: You have to be actively engaged in your money management. If you step out of the process, your future is at risk.
Lie #5 Early retirement will be a viable option Sorry, but for most people, it won’t. Americans now plan to work an addi-tional 4.2 years to make up for money they lost in the recession, according to research conducted by Ken Dychtwald at Age Wave and Harris Interactive. This will mark the first time that retirement age significantly in-creases in the United States, Dychtwald says. Almost 60 percent of the population has lost mon-ey in mutual funds, 401(k)s or the stock market in the past 12 months. (The rest weren’t invested in the stock market.) Men and women near retirement suffered the greatest losses. Americans believe it will take on average seven years for their invest-ments to be worth what they were one year ago. Bill Losey, a financial planner in Wilton, New York, says most people today should plan on retiring in their mid to late sixties or even early seventies. You’ll never know what you can afford, however, until you run some numbers. Far too few people go through this crucial exercise. Go to choosetosave.org and click on the Ballpark Estimator.
