In the realm of personal finance, sensible retirement planning and the fear of missing out (FOMO) often stand at odds with each other. It’s a balancing act between securing a comfortable retirement and succumbing to the allure of quick gains and trendy investments that may harm your long-term plan.
That dichotomy, pitting practicality vs emotion, is particularly manifest today as people are more worried than ever about whether they’ll have enough money to live the retirement lifestyle they desire. Some people who haven’t saved enough may be more prone to take investment risks to make up for lost time. But even people who have been disciplined and built a nice nest egg may be drawn to high-risk, high-reward opportunities that, if successful, can strengthen their retirement funds.
The temptation is real. The siren song of investment trends promising overnight wealth can overpower careful and structured planning, enticing people to chase fleeting opportunities while potentially jeopardizing their long-term financial health. You cannot avoid tempting headlines with meme stocks, cryptocurrencies or artificial intelligence (AI).
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But to better ensure your future financial security amidst the noise of market euphoria, it’s crucial to refocus on fundamental principles that result in a stable, consistent and sustainable retirement plan. True financial security is not built on chasing every hot trend but rather on a solid foundation of prudent planning and disciplined investing. Here are three tips to consider to help you keep your eye on the ball:
1. Have realistic goals, align investments accordingly.
Setting realistic goals is paramount. While double-digit returns and soaring stock prices can be captivating, it’s essential to ground yourself in financial realism. Identify your financial goals and let them guide your investment decisions. When considering a new investment, make sure it aligns with your goals and your risk tolerance.
One fundamental philosophy of saving is to put 10% to 15% of your paycheck in a tax-advantaged retirement account (401(k), 403(b), traditional IRA or Roth IRA). Estimate your retirement needs, starting with your annual living expenses, while factoring in the possibility of higher health care costs. Consider the various income streams you’ll have in retirement, including Social Security, pensions and retirement plans. From there, you can determine the amount you need from your investment portfolio.
When examining your projected retirement budget, conduct a stress test on your investment portfolio; that way, you can see if your cash flow can withstand the demands of your retirement lifestyle and any downturns in the markets. A stress test helps you prepare for potential challenges and adjust your investment strategy.
2. Don’t let emotion drive your decisions.
Emotions cloud your judgment and can trigger impulsive decisions that result in bad financial decisions. The over-eager investor may purchase at an inflated price. Don’t fall prey to impulsive decisions, which can cause you to neglect long-term goals.
For example, in pursuing quick gains, investors may forsake diversification and focus on a single asset or sector, making them more vulnerable to market fluctuations. Develop a long-term strategy and stick to it, irrespective of short-term market fluctuations. Do the research. Stay updated on market trends, investment vehicles and economic developments. Engage with financial resources, such as books and seminars, to empower yourself with knowledge.
3. Diversify your portfolio.
Diversification means dividing your money across a variety of asset classes and investments, helping reduce your risk while not sacrificing too much in returns.
Stocks potentially offer the highest return over time but can fluctuate over shorter periods. A diversified portfolio contains assets such as bonds, mutual funds, certificates of deposit, real estate and savings accounts. By owning multiple assets that perform differently, you can reduce the overall risk of your portfolio. You won’t achieve significantly high returns from owning a rapidly growing stock, but you also won’t be as susceptible to market ups and downs.
A structured approach serves as a practical framework for navigating the complexities of financial planning while safeguarding against the lure of FOMO-driven impulses.
Be mindful that while diversification can reduce risk, it doesn’t eliminate all of it. For example, with assets sensitive to interest rates, such as bonds, diversification won’t protect you from the threat of rising rates generally. Also, some investments — like certificates of deposit (CDs) — are threatened by inflation.
The journey toward a secure retirement is fraught with temptations and distractions. Retiring confidently requires discipline, patience and a steadfast commitment to long-term goals. By focusing on what truly matters to you in retirement, maintaining realistic expectations and seeking professional guidance when needed, individuals can navigate the complexities of financial planning with confidence and without succumbing to FOMO.
Remember, it’s not about chasing trends. It’s about building a solid foundation for a fulfilling and financially secure retirement.
Dan Dunkin contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
Related Content
- In Retirement, Put Your Eggs in These Three Baskets
- The Five Stages of Retirement (and How to Skip Three of Them)
- Six Financial Actions to Take the Year Before Retirement
- Five Things I Wish I’d Known Before I Retired
- Retirees’ Anti-Bucket List: 10 Experiences You Don’t Want
-
How to Read a Company's Balance Sheet Like a Stock ProKnowing how to read this financial statement can help you separate strong companies from struggling ones.
-
How to Choose the Best Charities to Donate ToWhile you set your giving strategy, think about your values, and select organizations that will put your contributions to good use.
-
I'm a Financial Planner: This Is Why Commitment, Not Perfection, Drives Financial SuccessMeeting your goals is more likely if you stick to your strategy despite market volatility and scary headlines. Consistency makes a difference.
-
I'm a Financial Professional: This Is Why Now Is the Time for Investors to Look AbroadExtreme U.S. market concentration has made international equities not just a diversification play, but a timely opportunity.
-
Four Ways to Make the Most of Your Benefits During Open EnrollmentOpen enrollment is a chance to make sure you're getting every ounce of value from your workplace benefits and on track to reach your long-term financial goals.
-
Your Estate Plan Isn't 'Done' Until You've Completed These Five Steps, From an Estate Planning AttorneyCongratulations on getting your estate plan in order. Now, you need to communicate the relevant details to ensure your plan is effectively carried out.
-
A Nightmare for Parents: How to Navigate the Legal Boundaries of Tenant Rights During a Family CrisisThis family's story illustrates how important it is to get help sooner rather than later and highlights the complexities of tenant rights and legal protections.
-
Eight Steps to Help Get You Through the Open Enrollment Jungle at WorkWondering how to survive open enrollment this year? Arm yourself with these tools to cut through the process and get the best workplace benefits for you.
-
Seven Moves for High-Net-Worth People to Make Before End of 2025, From a Financial PlannerIt's time to focus on how they can potentially reduce their taxes, align their finances with family goals and build their financial confidence for the new year.
-
I'm a Financial Planner: These Are the Seven Tiers of Retirement Well-BeingLet's apply Maslow's hierarchy of needs to financial planning to create a guide for ranking financial priorities.
