Download Reasons Young Americans Won`t Be Ready For Retirement

As seen in the 7/29/2011 issue of:
Reasons Young Americans Won’t Be Ready For Retirement
Written by: Stephan Cassaday, CFP®, CFS
For most young Americans, financial insecurity, compulsory work after normal retirement age and
dependence on government safety nets in later life are very real possibilities.
Most young people do not think about their lives 40 years in the future, but proper habits and small
incremental behavioral changes around money issues, especially when initiated at an early age, can more
fully assure accumulation of sufficient wealth for a comfortable, financially independent retirement.
Financial success requires sacrifice, discipline and adherence to three basic investment principles.
Sacrifice means different things to different people. What it does not mean is forfeiting all fun things and
living like a cockroach.
Examples of reasonable sacrifices are giving up one or two discretionary-spending items and putting
money in your company retirement plan. These 401(k) and 403(b) plans and their ilk are the best overall
way for young people to save for retirement. They are convenient, painless and have outstanding tax
advantages.
Relatively small amounts, saved regularly in investments that have a higher return potential, can result in
massive long-term accumulations, but starting early is imperative. Assuming an 8 percent return, if
people save $100 per month beginning at age 25, they could accumulate $351,000 by age 65. If they wait
until age 30 to start, they would accumulate $231,000. That is a significant difference and should be a big
motivator to start early.
Discipline means you are capable of making the sacrifice required to free up the money necessary to have
a savings plan, implementing it and sticking with it for decades. What it says about you is that you are
serious about your future and not blithely sailing along thinking that money will magically appear in
your accounts. It won’t; it is up to you.
Discipline also means that you spend time thinking about saving, that you are conscientious about setting
savings goals, that you pay yourself first by putting money away every paycheck and that you have a
budget and know what you can spend and save each month. Spending as much time planning your
future as you do planning a weekend getaway is discipline.
Once you are committed to making small incremental behavioral changes in a disciplined, organized and
well-thought-out manner, the next step is to unfalteringly adhere to three basic investment principles.
The first principle is to remain diversified. In general, stocks, bonds, hard assets and cash represent
everything you can put your money into. Your portfolio should have some money in each of these four
groups.
Adjust your risk level to fit your tolerance by varying your allocation between the risky (stocks and hard
assets) and the more stable (bonds and cash) asset classes. Although it may make you uncomfortable,
taking some risk may be essential. Historically the trade-off for fluctuations in portfolio value due to the
presence of risk has usually, but not always, been higher returns.
The next principle is rebalancing. Rebalancing prunes your portfolio back to your target allocation at
regular intervals. This should happen at least annually. Rebalancing forces you to sell high and buy low,
the basic axiom of successful investors. Without rebalancing, portfolio allocations become distorted over
time and may no longer reflect the investor’s risk tolerance and return objectives.
The final principal is to avoid the temptation to time the markets. Although opinions vary, research does
not support the contention that one can time entries and exits to improve investment results. More money
is lost trying to avoid declines than in the declines themselves.
Small sacrifices and discipline at an early age, while you remain fully invested and diversified with
regular rebalancing, may be the key to a financially independent retirement. Be sure to speak with a
qualified financial adviser about any strategies you might be considering before investing and email this
column to young people you care about.
Steve Cassaday is a 34 year veteran of the investment industry and President of Cassaday & Company, Inc., an
award winning independent wealth management firm in Tysons Corner.
8180 Greensboro Drive, Suite 1180
McLean, VA 22102
www.cassaday.com
703-506-8200  800 672 2102  Fax 703 506 8208
Securities offered through Royal Alliance Associates, member FINRA/SIPC. Investment advisory and insurance services offered through
Cassaday and Company, a registered investment adviser not affiliated with Royal Alliance Associates. The views expressed are not necessarily
the opinion of Royal Alliance Inc. Investing involves risk including the potential loss of principal. No investment strategy including
diversification can guarantee a profit or protect against loss in periods of declining values. Individual situations will vary; therefore, the
information presented here should only be relied upon when coordinated with individual professional advice.