For those of us approaching or already in retirement there are numerous things to consider financially that can stand in the way of preserving wealth for yourself and future generations. Investing your financial assets in a prudent fashion that meets your unique goals is one of them. Investors are always looking for guidance on how best to structure their investment assets and navigate tough markets. This is especially true when you near retirement. Therefore, it can be helpful to liken a sensible investment experience to working out and eating healthy; easy to understand but difficult to implement consistently over time.
In his new book, Playing the Winner’s Game: Think, Act, and Invest Like Warren Buffett, financial author Larry Swedroe provides readers with 30 rules of prudent investing. While each rule is beneficial to investors, we took the liberty of including 5 of what we feel were the best takeaways for investors at any level of wealth.
- Do not take more risk than you have the ability, willingness, or need to take. In other words, consider your time horizon, stability of income, ability to tolerate losses, and rate of return required to meet your goals.
- If the security has a high yield, you can be sure the risks are high even if you cannot see them. High yield is like the shiny apple with which the evil queen entices Snow White. Investment risk may be hidden but you can be sure they are there.
- The strategy to get rich is entirely different from the strategy to stay rich. One gets wealthy by saving their money and taking risks. One stays wealthy by minimizing risks, diversifying their investments, and not spending too much.
- Take your risks with stocks. The role of bonds is to provide the anchor of the portfolio not as a means to take on additional risk. Use bonds to preserve this portion of your wealth.
- The five most dangerous investment words are “This time, it is different.” Getting caught up in the mania of the “new thing” is why “the surest way to create a small fortune is to start out with a large one” is a cliché.
So keep these rules in mind as you navigate through your own retirement and beyond.