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Don't Buy Into These 3 Investment Myths

I don't know about you, but I spend hours a day planning for retirement.

No, seriously.

I devote a good portion of each day to deciding where on Peninsula de Nicoya I should build my beach bungalow. How many hours a day I'll spend out in the surf trying to ride the waves versus how many hours I'll spend sitting at the bar, pretending I can.

How often I'll come back to the States. If I'll come back to the States. Whether I should buy an old beat-up Jeep, or just walk the lonely, dusty streets of Mal Pais, Costa Rica. You know, the important stuff.

You probably think I'm crazy
… especially now that we are firmly in the teeth of one of the worst bear markets any of us can ever remember.

In fact, a few people have even suggested that I stop daydreaming about retirement, and start dusting off my resume. After all, they're convinced that thanks to the past two months all of us are now going to have to work until the day we die.

To these people, I suggest a simple exercise ... head over to Yahoo! Finance and take a look at the one-year chart of the S&P 500. It's gut-wrenching. Then check out the two-year chart. Even worse. Five years. Still pretty dismal.

But then pull it all the way out to 10, 12, or even 15 years. Suddenly things start to look pretty good again. If nothing else, it shows you that stocks really can grow your money over time. It also demonstrates that as bad as this drop has been, it's only a bump in a road that has historically climbed steadily upward. You don't have to take my word for it, though.

In a recent op-ed piece Warren Buffett wrote for The New York Times, he points out, "Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497."

So, what would Buffett do now?
I realize many of you -- like my parents -- don't have 10, 12 or 15 years until retirement. In that case, I'd suggest you take advantage of our Motley Fool Rule Your Retirement service immediately -- my parents do.

After all, our in-house retirement expert Robert Brokamp can give you some great advice, tips, and tricks for preserving -- and even growing -- your wealth in these tough times.

But for those of us who still have 10, 15, or even 50 years until retirement, I urge you follow Buffett's lead and look for great businesses with strong moats, selling at good prices. As you probably know, Buffett just bought major stakes in both Goldman Sachs and General Electric.

And whatever you do, don't fall into to any of these traps that could one day keep you from living out your dreams, such as:

Trap No. 1: It's too early to plan for retirement
According to a study cited in a colleague's article, 49% of people age 25-34 have less than $25,000 saved for retirement. While that's not particularly surprising, this certainly is: A mere 23% of people over 55 have more than $250,000 saved up -- and they're within a decade of retirement!

Too early to plan for retirement? Hogwash! Can you imagine if Tiger Woods' parents had told him he was too young to swing a golf club, or if Roger Federer's coach had told him he didn't need to practice his forehand yet? A large part of the reason those two men so dominate their respective sports is because they got a jump start -- and they never let up.

The same holds true with investing for retirement. You need to practice, work hard, and focus -- so that when game-time finally arrives, everything is effortless and just falls into place. Is it a coincidence that Warren Buffett began investing at 11, has practiced every day since, and is now the richest man in the world? I think not.

So, what gives? I think it has a lot to do with the second investment myth you need to ignore at all costs.

Trap No. 2: The "I Can't Beat Federer" Syndrome
If you've watched professional tennis anytime in the past decade or so, you know that virtually no one can beat Roger Federer -- except for Rafael Nadal. Likewise, virtually no one can beat Tiger Woods on Sunday or otherwise. You probably can't, and I certainly can't.

Furthermore, it's not very likely any of us will ever be a better investor than Buffett. Nor is it likely we will one day be able to brag about how we got in early on and then rode off into the sunset.

So what? Just because I can't beat Roger Federer doesn't mean that years of practice and dedication won't turn me into an exceptional tennis player, or that hitting a bucket of balls at the range every day won't improve my drive immensely.

And just because you may not ever match Warren Buffett's wealth doesn't mean you shouldn't follow his investing style -- regular purchases of excellent companies selling for less than they're worth. Yet many investors mistakenly believe that the only hope for securing life-changing wealth is to get in early on the next Dell (Nasdaq: DELL  ) or Sun Microsystems (Nasdaq: JAVA  ) .

But as my colleague Seth Jayson points out, there are plenty of well-known stocks that can still deliver superior long-term returns. Believe it or not, from 1957 to 2003, well-known names like Merck (NYSE: MRK  ) and Pfizer (NYSE: PFE  ) would have delivered you more than 15% annual returns.

And thanks to the unprecedented market sell-off, many great businesses with high yields are selling at huge discounts. Take for example Johnson & Johnson (NYSE: JNJ  ) , Reynolds American (NYSE: RAI  ) , and Kraft Foods (NYSE: KFT  ) .

Trap No. 3: Planning for retirement is hard
The final thing that seems to keep many people from achieving their dream retirement is the very thing that could achieve it for them in the first place: hard work.

There's no sage advice I can quote here, and I'd be lying if I said investing well or planning for retirement was simple. But you must make it a commitment and priority today -- for the sake of your future. Plus, with a little help, it can be far easier than you ever imagined.

If you don't believe me, I invite you to take a free 30-day trial of Motley Fool Rule Your Retirement. You'll get full access to all of our retirement experts' tips and advice, as well as detailed information on the best place to invest your money -- whether you're 20 years out from retirement, 10 years away from retirement, or already there.

Remember, it's never too early -- or too late -- to start working toward your dream retirement, so simply click here to get some help on ruling your retirement.

See you in the surf!

This article was first published June 24, 2008. It has been updated.

Austin Edwards doesn't own shares of any of the companies mentioned, but his parents do subscribe to both Rule Your Retirement and Motley Fool Stock Advisor. Dell and Pfizer are Motley Fool Inside Value recommendations. Kraft, Johnson & Johnson, and Pfizer are Motley Fool Income Investor recommendations. The Fool owns shares of Pfizer and has a disclosure policy that isn't afraid to ride the big waves.

Read/Post Comments (20) | Recommend This Article (148)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 28, 2009, at 4:31 PM, InvestEveryMonth wrote:

    Not only will investing early in life give you more time to practice and get better, but it will also give those early investments a longer time to grow. This is very important considering the compounding growth rates of investments.

  • Report this Comment On February 20, 2009, at 8:14 PM, biglittleone wrote:

    As a retiree for over 15 years, we had saved from almost day one of our mariage and retired with significant assets. In spite of recent "problems" in markets we live on significantly less of our pensions.

    We still invest spare money.

    Aiding this is an excellent medical care system that covers us stem to stern. And it is affordable.

    Thirty-five years of saving do make a difference

  • Report this Comment On April 02, 2009, at 2:29 PM, rajeevsingh111 wrote:

    I agree with this.. Other than these 3 I also feel another trap is that who knows if I will survive that far.. for all you know i may not live that long so why save.. this is suicidal thinking .. the real danger these days is not of living too less but what if i lived till age 90 years then who will pay my bills??

  • Report this Comment On April 15, 2009, at 5:51 PM, LeeRMusser wrote:

    Did you really delete my comment?

  • Report this Comment On April 15, 2009, at 5:53 PM, LeeRMusser wrote:

    How about actually addressing what I said. I was not even bashing you.

  • Report this Comment On April 30, 2009, at 9:15 AM, tomd728 wrote:


    We want to hear from you,,how does one find the deleted comment ?


  • Report this Comment On June 18, 2009, at 8:12 PM, WishToRetire wrote:

    Oh I see I should buy excellent companies.. That must have been my problem all along. How silly of me. Let's all reoslve to only buy excellent companies from now on then. Good advice.

  • Report this Comment On September 13, 2009, at 9:29 PM, sangell wrote:

    what about older people who dont want to lose there money

  • Report this Comment On January 02, 2011, at 9:31 PM, pcristi88 wrote:

    I'm trying to start investing for my retirement. I have a 401k where I put 5% (thats what they match) and a roth ira where I put 5000 a year which is as much as I am allowed. I have some money that I want to buy stocks with but am not even sure where to start. can anyone give me some advise?

  • Report this Comment On January 05, 2011, at 12:03 AM, dadbags wrote:

    im an investor since 1983---i love "THE FOOLS"-BUT they never mention CEF--CLOSED END FUNDS--IM SURE SOMEONE OUT THERE REALIZES THAT MOST CEF PAID THEIR DIV AFTER AND DURING THE CRASH-unlike ge-bac-c-some of these div are over 10%--lets hear some input on closed end funds--good luck to all steven

  • Report this Comment On March 24, 2011, at 1:31 PM, buddylady wrote:

    I was let go by a company I worked for as an employee for 21 years and as a consultant for 13 years. As an employee I contributed to a 401K and have $465 000 sitting in that plan invested 75% in a money market fund and the remainder in Dodge & Cox Balanced Fund. I'm told I should have it transferred to a self directed IRA. I'm 77 years old but still have tutitions to pay. I will appreciate your suggestions or comments.

    Bill N

  • Report this Comment On April 07, 2011, at 3:05 PM, Paulistano wrote:

    Following Warren Buffett is the last thing I would do as a small investor planning for retirement.

    He´s a professional with staff and resources and his investments are pretty sophisticated.

    A couple of years ago I had to translate his annual letter into Portuguese so had to really get to grips with it rather than just skim through it and I was astonished by the scope and complexity of Berkshire Hathaway´s holdings. Buffett´s portfolio is not just Coca Cola, Gillette and a few others but (at that time) insurance and electrical energy companies where great skills were required.

    I also pay little attention to younger people like this writer offering advice when they are not in the same position as someone like me who is facing retirement. The subject is still too abstract for them to understand.

    As poster Sangell said, older people don´t want to lose their money. In fact they are terrified of losing their savings.

    Older people are also more likely to find they are penalized because of their age. For example, my health insurance premium automatically rose by 50% when I turned 59 even though I was as healthy/unhealthy as I had been 24 hours earlier.

    How about an unbiased article suggesting some good fixed-income choices aimed specifically at retired people?

  • Report this Comment On May 16, 2011, at 10:39 PM, gbadeb wrote:

    For pcristi88: It sounds like you need to do more research before investing extra cash. Save the extra cash in a CD ladder for now. If you sign up for online service with your 401(k) and explore their research tools and calculators, that is an excellent place to start. Then consider gradually increasing your 401(k) contribution to 10% or 15% using the stock funds that they have available.

    Here is another MYTH: the employer's default 401(k) enrollment Target Date fund is all you need. Never settle for the default! It will barely match inflation. If you haven't started to choose your own 401(k) allocations, you are definitely not ready for stock investments.

  • Report this Comment On May 24, 2011, at 10:32 PM, UKIAHED wrote:

    yep - in escrow for 2 rentals now. Pick the right area(s) and investment property is a nice addition to retirement planning.

  • Report this Comment On June 26, 2011, at 8:56 PM, pepon99 wrote:

    The bankers have been getting their silver and gold out of the ETFs like SIL and GLD. I cashed in my 401 (k) and bought physical silver and gold. With the dollar going down any paper will go with it. Stay out of SLV and GLD.

  • Report this Comment On June 28, 2011, at 6:14 PM, ivanhoe292 wrote:

    Only one way to "insure" a carefree retirement.

    Your defined benefits must cover 80% of your cost of living.

    Savings becomes discretionary monies for entertainment...part of which is invested but not risk free.

  • Report this Comment On March 22, 2012, at 8:05 PM, kryssy3 wrote:

    Hi, I just resigned from my job and want to do a rollover but don't know where to start. My biggest concern is I will lose my money. I can't even explain how unknowledgable I am about this & even with all the searches for inforation, I find myself ovewhelmed. Is a roth IRA the best thing for me to do? & will i be able to pick where I want it invested or does this just sit there and grow with interest. Thanks for any help.

  • Report this Comment On May 29, 2012, at 6:57 PM, roulette911 wrote:

    Do the rollover. If you do the roth ira you have to pay taxes on the money. Put all you can in the roth. And DO NOT just let there as you will surely lose money. I have been "retired" for about 15 years and have a 34% gain on my portfolio. I like high dividend stocks. By high , I mean more than you would get on a CD. some of them pay 14%. The reason you want to invest as much as you can in a ROTH is at 70 1/2 you have to take the money out and you will be taxed at the regular rate. Do not put MLP's in an IRA. they are tax advantaged and you would lose that in an IRA. Speaking of MLPs Does any one know why a portfolio manager would tell me they don't give yu all the money you are supposed to get? I thought they were well regulated and just about had to perform the way they are supposed to.

  • Report this Comment On July 23, 2012, at 10:41 PM, Meryel01 wrote:

    How are the Tax CD for a beginner faring

  • Report this Comment On December 22, 2012, at 9:06 PM, monkeyfurball wrote:

    You wrote this article 12-2008. Today it is 12-22-2012. You hit the JACKPOT with this advice as the market has now nearly doubled from its 3-2009 lows. People like me who kept adding to my index funds in 2008 and 09 have huge gains today. I bet lots of folks booed you after this story and said you were crazy for suggesting to buy stocks in 2008. Well, those FOOLS were dead wrong. I have no problem rubbing it in either. They were and are cowards and cowards are not good investors. Kudo's for this article written in 2008. Thanks for having the fortitude to write it.

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