According to a recent study, roughly 40 per cent of Canadians would be unable to pay for an unexpected $200 expense without going into debt.
I’ve spent over 20 years working with people and their money and reading all kinds of financial material and I’m stunned by that finding. Anyone who can’t cover even a small bill is almost certainly going to be in the large group of Canadians who will fall short of their retirement goals. We have these dreams for life after work but we rarely achieve them.
If you want to retire well with more money than you can outlive, you’ve got to take control of the behaviors that are destructive to building the wealth required to retire comfortably and worry free.
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In his book Retire Inspired, author Chris Hogan says that most of us have bleak finances, but they’re salvageable with good decisions.
“If you want to win at the retirement game,” Hogan writes, “you’ve got to take control of the behaviors that might keep you from investing. With that in mind, let’s take a look at three reasons why people hit retirement with no money.”
I don’t agree with Hogan that most people retire broke, I concur with his reasons why most of us are somewhat financially inept.
We don’t invest
The number 1 reason for our failure to achieve our financial goals is our refusal to invest. Fear is the biggest reason we don’t invest; we’re afraid of losing money. You have to understand what risk is – and what it’s not. It’s not market ups and downs.
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Assuming that you have the time to wait it out, market volatility can be your friend. If there is money that you won’t need for years, then market drops are opportunities to buy into a rising tide at reduced prices.
Investment markets and financial planning are complex. Most of us don’t understand them so we often own low-yield instruments such as GICs (guaranteed investment certificates), where we’re pretty much guaranteed to lose purchasing power year after year.
You’ve invested – but now what? Don’t expect a smooth ride; investment markets don’t work that way.
A friend of mine was persuaded to buy shares in a high-risk sector mutual fund and over a few months his $30,000 tumbled to just over $25,000 and he sold.
Many people would benefit from a good investment advisor to help them invest appropriately, ignore the noise and keep focused on the long term.
Related article: Five realities of the stock market
Markets go up far more often than they go down, and the ups are bigger than the downs. Corrections of 20 per cent or more occur roughly every three years. If you can stick it out through the bad times the reward comes when the inevitable recoveries occur.
In the late-‘90s one of my clients wanted to sell his conservative investments to buy technology mutual funds. Everyone was riding the tech boom, he thought. I managed to convince him that it was a bad idea.
A few months after we had that conversation the tech bubble burst and the sector dropped 70 per cent. The tech sector took almost 15 years to recover to its pre-crash level.
“You and I are always one stupid decision away from wrecking a retirement dream,” Hogan writes. “One bad risk on a single stock, one afternoon of day trading, one impulsive hour in the showroom of a luxury car dealership — all it takes is one moment of letting your guard down to undo years of hard work. Always measure the long-term impact of these kinds of decisions, and keep your guard up against stupid!”
While I think that some of Hogan’s writing is hyperbole as it would take a monumentally bad decision to wreck a retirement dream, over the course of a few decades several terrible decisions can compound to scuttle a retirement dream.