There's no better teacher than experience. Unfortunately, experiences within the world of investing can often be expensive, sometimes even outright derailing retirement plans. Smart investors would be wise to learn as much as they can from someone else's experiences and mistakes.
To that end, here's a rundown of five of the best nuggets of wisdom for anyone starting to think about retirement. Much of it is advice most of us already understand and embrace, but it never hurts to hear it put in straightforward, unambiguous terms.
1. Bear and bull markets
Bottoms in the investment world don't end with four-year lows; they end with 10- or 15-year lows.
-- Jim Rogers, chairman of Beeland Interests, Inc. and the co-founder of the Quantum Fund and Soros Fund Management
This didn't used to be the case. In the distant past, economic cycles lasted a fairly reliable four years. Bear markets weren't devastating because the bull markets didn't carry stocks to nose-bleeding heights. Now, however, efforts to prolong economic growth set the stage for big setbacks that take a long time to wipe away. It took the S&P 500 seven years to reclaim its peak price seen in 2000, after falling back to a low in 2003 that hadn't been seen since 1997. It wasn't until 2013 that the index eclipsed the high hit in 2007, after falling below the low from 2003 in early 2009.
In simplest terms, bear markets hurt -- a lot. Investors must plan accordingly, particularly if they're nearing retirement when we're due for a bear market.
2. Investments as entertainment
Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.
-- Paul Samuelson, famed economist
Paul Anthony Samuelson was the first American to win the Nobel Memorial Prize in Economic Sciences, in 1970. More important to investors, he's 100% right. His sage advice cuts right to the heart of what readily plagues so many investors. Too many traders treat owning stocks as a form of entertainment under the guise of wealth-building. Like all other forms of entertainment, this approach tends to consume rather than grow money -- particularly money needed in retirement.
3. How long is forever in investing?
Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.
--Warren Buffett, CEO of Berkshire Hathaway
More often than not, the "Our favorite holding period is forever" quote is the Oracle of Omaha's go-to option to make the point that we need to think long-term. But "forever" is a tough idea for most investors to wrap their heads around. By paring the mental timeframe down to only 10 years, the premise is much more approachable yet no less poignant. After 10 years, the value of a company becomes evident in the price of a stock. Shorter timeframes leave a stock's price subject to traders' misguided opinions of that company's prospects.
4. Leadership can make a difference
Go for a business that any idiot can run -- because sooner or later, any idiot probably is going to run it.
-- Peter Lynch, manager of Fidelity Investments' Magellan Fund from 1977-1990
It's an idea that touches on what might be the biggest pitfall investors must navigate in the current environment -- celebrity CEOs. Are you investing in Tesla, or are you investing in its hard-driving and brash CEO Elon Musk? Are you investing in the world's biggest and most lucrative social networking platform, or are you investing in the boyish innocence of Facebook CEO Mark Zuckerberg? A major leadership change in a company you own right after you retire can rock your portfolio's value.
One doesn't have to look too far to find an example of a company that just wasn't the same once a high-profile leader stepped out of the picture. General Electric, for instance, was never quite the same once Jack Welch retired in 2001.
That's not to suggest Welch would have been able to sidestep every single challenge that's plagued the industrial giant since his departure. The advent of digital solutions built on and around the internet largely left GE out of a significant business evolution. Still, finding the right leader has proven a major problem for the once-great General Electric.
5. Do we really need to save?
Money is something you got to make in case you don't die.
-- Max Asnas, a Russian immigrant who opened New York City's famous The Stage Deli in 1937
While nobody knows for sure if Max Asnas is the one who said it first, he's the one most often credited as the name behind the saying. You may have also heard a similar "Money's only something you need in case you don't die tomorrow" from fictional movie character Carl Fox, played by Martin Sheen in the 1987 film Wall Street.
Regardless of its source, the point is still the same. Assuming you live beyond your last day of work, you'll have to at least partially fund your own personal retirement plan. The AARP reports that the average monthly Social Security check as of the beginning of this year is just a tad above $1,500. That's not a bad start, but it won't be enough for most people receiving such a monthly check. Not even those who receive the biggest Social Security checks possible will be earning much more than $3,000 per month, in today's dollars. That means investors will have to do some degree of saving and/or investing on their own to help cover the expenses they will likely have in retirement, no matter how modest the amount is in the beginning.