Don’t Focus On These 5 Wrong Things

Our topic on this episode of the Ready for Retirement podcast is “Don’t Focus On These 5 Wrong Things”. 

With so much information, it can be difficult to know what’s truly worth spending our time on. James gives examples in this episode of five things we shouldn’t focus on and four things we should focus on. 

Active vs. passive management, fee’s, small impact decisions, recent performance & the news can all be things we focus far too much attention on that won’t greatly impact whether or not we achieve our financial goals. Focusing on consistent saving, creating portfolios that match our objectives, personal goals, and high impact decisions are all things that are extremely important when it comes to reaching your financial goals. 

Are you ready to start focusing on the things that truly matter when it comes to your financial future?

Key Points

• Five things not worth spending your time on:
  • Active vs. Passive Investing
    • James often uses index funds and low cost index options. Just having low cost index funds and ETFs is not enough- it’s a great starting point. If you’re not saving, tax planning, estate planning, there’s a lot of the puzzle that still needs to be filled in.
    • Active investing can be effective too, but these funds that are actively managed still don’t change the fact that having essential planning is still needed to achieve your financial goals.
  • Fee’s
    • Fee’s are important as they can eat away at long-term returns. If your advisor isn’t checking in with you regularly to help you achieve your financial goals, that fee may be too high as well. 
    • Fee’s are not the end-all be-all and it can be extremely time consuming.
    • Example: An advisor recommends an ETF for a client. A client comes back and says, “What about this fund that has a .001% lower fee”? Although it may be a slightly lower fee, that fee does not determine whether or not retirement will be achieved- there are many factors that need to be looked at.
  • Small Impact Decisions
    • “Should I spend $4 on coffee at Starbucks or invest it and make it at home?” is something we hear about so often. These small impact decisions could be a symptom of a larger issue, i.e. An inability to control spending. If you are buying coffee every morning, but also maxing out all your retirement vehicles and you are an avid saver, buy that coffee.
  • Recent Performance
    • Focusing on the 1-year, 3-year, and 5-year can often be misleading. 
    • Example: Over the last five years, large U.S. growth companies(tech stocks and blue chip stocks) have performed extremely well. International companies haven’t performed as well in that same time period. The reality is we have no idea if this trend will continue or if a shift may come and we notice international companies begin to perform better than U.S. growth companies in the near future.
    • From 2000-2010 the S&P 500 averaged -1% a year. From 2010-2020 the S&P 500 averaged 14% a year. It’s important to look at the big picture.
  • News
    • Keeping up with current events is important, but it doesn’t allow for an “edge” to receiving higher returns.
    • News is noise, and little to no impact on how it impacts your financial future. The news has a vested interest in your attention- without viewers, they won’t get revenue and they have to make headlines that grab your attention. 
    • “Invest for the long-term and diversify with low cost index-funds” won’t write any headlines even if it’s the financial advice we know works.
• What should we be spending our time on?
  • How Much Are You Saving?
    • Knowing your performance is important and it’s vital to your overall plan. No amount of performance is going to make up for the gap needed for your future financial success. 
    • Make sure to not use your investments as a scapegoat for how much you know you should be saving.
  • Your Personal Goals
    • Your personal goals are all that matter. If you’re 10 years away from retirement, align your goals with what you’re thinking and not what the media is portraying at any given time.
  • Match Your Portfolio to Your Goals
    • Focus on historical and long-term data. 
    • Understand what asset classes provide the best growth or the best income, depending on what your goals are.
  • High Impact Decisions
    • Not buying a coffee in the morning is very different from buying a luxury car. Focus on what can help you achieve your long-term goals. 
    • Can you increase your salary 10% a year? That allows for saving, investing, and that $4 cup of coffee guilt-free. 
    • Automate your savings- increase your 401(k) contributions, your mortgage payment, your car payment, etc. 

Timestamps:

1:20 – Active vs. passive management

2:10 – Why just having low cost index-funds doesn’t mean you’re on track

3:20 – Is the lowest fee the best fund?

5:20 – Why fee’s can make you miss out the bigger picture

7:47 – Focusing on recent performance can impact your long-term portfolio

13:50 – If I buy coffee every morning, will I reach my financial goals?

14:20 – Four things you should focus on to achieve your financial goals

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