Back in late November, I, along with the rest of the Pittsburgh Steelers faithful, lamented a humbling 26-7 loss at the hands of the Indianapolis Colts in a marquee Monday Night Football matchup. After another loss the following week, Pittsburgh fell far behind in the division race and was left with just an outside chance of even making the playoffs. Sometimes it takes a little adversity for a team to show its resolve, though, and the Steelers have not lost a single contest since then.
So how does a team go from the brink of elimination to the Super Bowl? Three things: focus, execution, and, most importantly, a carefully crafted gameplan.
Those same traits can be equally useful in the financial world. A sharp focus will help prevent wayward investors from becoming so distracted by day-to-day concerns that they lose sight of long-term financial goals -- like retirement.
The foundation for a winning team or a successful investor, though, begins with the game plan. To ensure a comfortable retirement, pull out your coaching playbook and make sure that your portfolio is prepared in all three phases: offense, defense, and special teams.
This one is rather self-explanatory -- it's all about scoring points (or, in this case, dollars). As the offensive coordinator, it's your job to evaluate your own strengths and weaknesses and select the investments that will best enable your portfolio to march forward. Naturally, everyone will have a different strategy.
Maybe you're the type who favors a high-powered passing attack, where a few key plays eat up huge chunks of yardage. If so, you'll probably structure your play calling around high-octane growth companies like Google
On the other hand, you might feel that your offense is better suited to moving the first-down chains through a slow, methodical ground game. After all, to capture a big gain, you often run the risk of tossing a costly interception. In this case, you've probably anchored your offense with fixed income investments and conservative stocks like Motley Fool Inside Value pick Anheuser-Busch
Regardless of how you plan to reach the retirement goal line -- quick strikes, sustained drives, or a combination of both -- it pays to avoid penalties. For example, frivolously spending money that might otherwise have been invested is like getting called for a five-yard "delay of game" penalty. It's a seemingly harmless infraction, but doing it repeatedly can completely stall your forward progress. A more severe penalty might be assessed for failing to take advantage of an employer's matching 401(k) contribution -- try not to get flagged for that one.
For a football offense to be in sync, everyone has to play a specialized role, be it running, blocking, passing, or catching. Similarly, a portfolio should have a finely tuned mixture of stocks, bonds, and cash all working together. Before you enter the retirement "red zone," call a timeout and assess which areas of your offense are clicking and which need some retooling. It can mean the difference between a prolific portfolio that racks up plenty of gains and an anemic one that always seems to be stuck in neutral.
After developing a sound offensive game plan to grow your assets, give some thought to how you're going to defend them. True, investors don't have to worry about being outscored by an opponent, but they do face a formidable challenge -- making sure their own points aren't taken off the scoreboard. If it's the offense's responsibility to generate gains, and then it's the defense's job to protect them.
It goes without saying that a few bad investments can move you backwards and slow your momentum. Unfortunately, this is just part of the game, and nearly all players must deal with it at one point or another -- sort of like a knee injury. Proper diversification and diligent research can help limit losses and keep your profits largely intact, but there's no way to avoid the occasional setback -- short of keeping your money on the sidelines out of harm's way. The defensive strategy I'm referring to, though, aims at eliminating the losses that can be avoided, like excessive fees, commissions, sales loads, and other frictional costs.
In the near term, these expenses may seem minimal, but over extended periods of time (like saving for retirement), they can take a serious bite out of your money. This can be particularly true for unwary mutual fund investors who often don't feel the erosive effects of high expense ratios until it's too late.
To borrow a hypothetical example from the Motley Fool Retirement Center: An investor who saves $100 monthly from age 25 through 65 while earning the long-term market average of 10.4% will have accumulated $349,100 (assuming he loses 2% annually to expenses). However, had that same person shopped around to find similar performance from an investment that only charged 0.4% per year, he or she would cruise into retirement with more than $632,000.
When it comes to saving for retirement, accumulating wealth is tough enough as it is, so don't needlessly surrender any ground without a fight.
After battling in the trenches all day, it's often neither the offense nor the defense that determines the winner, but the placekicker. Though they're overshadowed by the fleet-footed receivers, the strong-armed quarterbacks, and the hard-hitting linebackers, special teams nearly always have a say in the final outcome. Similarly, planning for a comfortable retirement involves far more than just growing and protecting assets.
To begin, you may not even have a ballpark figure on just how much it will take before you can finally stop punching the clock. Of course, the total is influenced by a number of factors: post-retirement rates of return, future inflation rates, annual trips to the Caribbean, etc. Fortunately, the Fool's retirement calculators can help you crunch the numbers and arrive at a target -- but there's much more to consider.
Should you max out your 401(k) or contribute to a Roth IRA? Are the losses inside your non-qualified variable annuity tax deductible? Could setting up a family limited partnership protect your assets and keep the taxman at bay? Speaking of rolling over highly appreciated company stock, have you considered the net unrealized appreciation rule? If you're lucky enough to leave the workforce early, is a 72-T distribution right for you?
As the Fool's in-house retirement coach, Robert Brokamp tackles such important topics every day. From practical advice on complex subjects to asset allocation tips to a wealth of online tools and planning resources, his Rule Your Retirement newsletter provides everything necessary to take charge of your future and prevent any fumbles when it really counts. Take a free trial today; it won't be long before its first-and-goal and you're ready to dive into the retirement end zone.