Now we come to a final few things I want to pass along to you in this blog on investing through the ages. Let’s call them survival tips for the young and old.
1. Avoid new products
Mature investors: everything you need has already been invented. If a product doesn’t have a track record that includes both good and tough times, ignore it. Let other investors be test pilots.
Young investors: compensate for your inexperience as an investor by sticking to proven products.
2. Don’t be a mutual fund patsy
Young investors: mutual funds can be ideal for new investors who don’t have a lot to invest, but there are more bad ones than goods ones. Choose carefully, stressing low costs and solid returns through up and down markets, and avoid funds coming off chart-topping years because they could disappoint.
Mature investors: exchange-traded funds (ETFs) are vastly cheaper than mutual funds, and you can build sturdy portfolios using as few as four or five of the traditional types of index-tracking ETFs. There’s nothing wrong with a lifetime’s use of mutual funds, but at least consider the ETF alternative.
3. Aside from guaranteed investment certificates (GICs), guarantees are for suckers
Mature investors: guaranteed investment certificates (GICs) are a great bond substitute – higher rates and solid protection against losing money. All other forms of guaranteed investments, including principal-protected notes and segregated mutual funds, are designed to make money for the investment industry by capitalizing on investor fear. Addendum: segregated funds can make sense from an estate-planning perspective.
Young investors: embrace a sensible level of risk as an investor and ride the markets for 20 or so years. Use time to smooth the stock market’s ups and downs, not costly guarantees.
4. Get and stay engaged
Young investors: the more you push investing off into the future, the more emotional and financial stress you’re likely to experience in financial matters.
Mature investors: can you explain why you own what you do in your portfolio, what your cost of investing is in rough terms and the value you’re getting for the fees you pay? If not, you’re forgetting one of the main rules of investing: no one cares as much about your money as you.
5. Nothing is fatal
Mature investors: you have to follow Rule 4 for this to work. For every investing problem, there’s a solution you can apply if you don’t let things fester too long. Your biggest risk is that you will arrive at your retirement with insufficient savings. You can fix that by investing more before you retire or phasing your retirement rather than just leaving the workforce all at once.
Young investors: any mistake you can make can be fixed, except one. That’s wasting the opportunity to invest early and benefit from decades of compounding.
One last thought for you: the smartest investors are the ones who recognize they don’t know it all. Stay curious.