I’ve been meaning to focus more on long-term financial strategies in this column, and that's going to mean more discussions and advice on retirement tools like IRAs, mutual funds and stocks.
No worries—that’s a good thing.
It’s funny, though. I’m known for the stock picks I make on Mad Money, but I have a long history of telling people to take a careful approach to their retirement investments. I’ve also been out on the stump telling people that a cautious stance could minimize, or possibly even eliminate, some of the damage done by a stock market collapse like the one we saw in 2008 (when some investors saw up to half of their retirement portfolios wiped out).
This was long before things went south for the economy and the stock market. In my book Stay Mad For Life, I point out early, on page 14, that when it comes to retirement funds, you can’t afford to take a big loss. "If your portfolio declines by 50%," I wrote, “you will need to gain 100% (in your portfolio) to get back to where you started.”
In the book, I also talked a lot about capital preservation, which simply means keeping the money you’ve already made in the financial markets. Call me Nostradamus, but in that same book, and on that same page, I used the springboard of capital preservation to warn Americans not to take on too much risk with their retirement funds, and that although it might be boring, an emphasis on capital preservation is a smart move when your financial future is on the line:
“Devoting your retirement to capital preservation means taking on less risk and pursuing substantially smaller returns. It can be frustrating to own a bunch of U.S. Treasury bonds that yield only five percent annually (and which are yielding much lower now). This ultraconservative path may seem like an agonizingly slow way to make money, but it’s also an incredibly safe way to make sure your capital at least keep pace with inflation. Again, you do not want and cannot afford to lose your retirement savings. People who disregard this warning get into serious trouble.”
I wrote those words years in 2006, well before the economic collapse of 2008. I’m not looking for any credit or big pat on the back, but I do want to reiterate that safety is still a big key for millions of Americans who face the unenviable chore of rebuilding their retirement portfolios after the “perfect storm” of 2008.
So that’s why I’m going to be taking more time to help people dig out of their retirement mess and put them back on the road to stability. Let’s start today with Job One—making sure you have recalculated how much money you are going to need for retirement, especially in light of the losses so many people have suffered in their 401(k)s and IRAs.
After all, none of us can see into the future, but we can agree on some basic, sound financial principles and guidelines. It's not enough to simply say, "I'm saving." You need a plan that includes specific targets and goals. That starts with a snapshot of where you are now, and what kind of ground you have to make up to still retire in relative comfort.