First off, credit on this title and article goes to Christine Benz of Morningstar. She recently wrote a great article on what she has learned in her 25 years of working there. If you want a copy of the article send me an email. Her first point of why investing is overrated really caught my attention and let me explain why.
Yes, investing is important. But it isn’t as important as some other fundamentals. What happens is investing is the “attention hog” that grabs the headlines, catches your eye throughout the day, and can create the illusion someone out there has the silver bullet to overnight riches (see Bitcoin retirement schemes in Kentucky). A common theme with investing is you can get these great returns and rewards with no risk and no effort. Just ask all those people who join a gym on January 1st, never changed their diets, and then quit on the 21st how their results were. Investing is similar, but it is the boring fundamentals that make the difference.
If you want to achieve your financial goals you should also be focusing on the boring stuff. Things like your personal savings rate. I am dealing with this right now as my two sons have their summer jobs. One loves to spend and the other is a saver, but both are being forced to open Roth IRAs (I am the world’s worst father!). If the saver continues on a good trend for the next 25 years he could probably stop saving by the time he was 40 and be all set for retirement.
In addition to your personal savings rate, there is the use of debt. I have talked about good and bad debt before. Good debt includes things like student loans (to an extent but taking a loan for spring break…mmm) and mortgages. Bad debt includes car loans as very few cars ever appreciate in value, unless you managed to keep your Fiero in prime condition. Credit cards in general are a bad idea, especially if you have floating rates which I am sure have been increasing recently.
I will stay off the soapbox about fees as I have hammered away enough on that topic for the last two years. But imagine if you can decrease the fees you pay by .50% and let that percentage stay in your accounts for the next 30+ years. Enjoying the average return of the market may make a difference of hundreds of thousands of dollars in your retirement. If you don’t believe me on the magic of compound interest, reread this article I wrote some time ago.
Again, investing is important. However, the point is that if you have a good savings rate, stay away from bad debt, and keep your fees and taxes low, you can overcome some bad mistakes when it comes to asset allocation and investment choices (you know, going heavy in tech around the year 2000).
Her final point is spot on – If you haven’t saved enough, great investment picks probably won’t be enough to save you. But, you can always take the Hail Mary and head to Kentucky to invest in some Bitcoin, which is only down 20% the past month.