Not only does all of this activity create increased anxiety, it often leads investors to act. And the result of that action is that even well-thought-out plans end up in the “trash heap of emotions.” The evidence shows that the actions most investors take are usually the wrong ones. In fact, studies have shown that investors actually underperform the very mutual funds in which they invest. They tend to buy after periods of good performance and sell after periods of poor performance.
Assuming you have a well-thought-out plan, you are best served by adhering to it. To help you accomplish this objective, we can again turn to some words of wisdom from Warren Buffett, which he offered in his 1996 letter to shareholders: “Inactivity strikes us as intelligent behavior.” Buffet also warns investors that “the most important quality for an investor is temperament, not intellect.”
Instead of focusing on the latest economic report or the latest presidential poll (political biases can also cause us to make investment mistakes), focus on what have been called the “big rocks” in life—be it spending time with family and friends, doing community service, working on your hobbies or whatever brings you fulfillment. These are the things that we can actually control and bring us joy, instead of angst.
Believe it or not, it will also make you a better investor. The research shows that the more time we spend on our investments, and the more frequently we check the value of our portfolios, the worse our investment outcomes. Again, that’s because inaction (other than rebalancing and tax-managing the portfolio) is more likely to be the right strategy.
Finally, to help you meet the task of creating a mentally challenging and emotionally fulfilling retirement, I highly recommend two books. The first is “Your Retirement Quest: 10 Secrets for Creating and Living a Fulfilling Retirement.” The authors, Alan Spector and Keith Lawrence, provide readers with a road map and directions for developing a holistic plan that will enable you to live a fulfilling retirement.
While financial security is indeed an important aspect of retirement, this book focuses on the all-too-often neglected nonfinancial aspects. The authors also provide compelling (and perhaps surprising) data on why “it’s not all about the money.” The book is filled with practical planning tips and worksheets that will help you think about critical choices, how to collaborate with those closest to you and guide you in putting the plan together.
My other recommendation is Mitch Anthony’s “The New Retirementality.” If you care deeply about having a fulfilling retirement, these two books are must-reads.
Larry Swedroe is the director of research for The BAM Alliance, a community of more than 140 independent registered investment advisors throughout the country.