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How Not to Invest in Retirement

Recently I was waiting in a retail store checkout line and started chatting with the clerk. He seemed like an amiable and chatty fellow so out of curiosity I asked him how long he had been working at this store. He replied that it had been about six months. He then went on to add that the pay was not much, but he worked mostly for the social interaction with customers and store employees. He explained that he had been retired for several years, but was restless so he found a job that he liked.

Good so far. This fits the profile and experiences of other retirees that I’ve met. He then said something that sent a chill down my back: “After the last election, I figured that the stock market would go up so I put everything I had into U.S. stocks.”

I was so stunned by this comment that I didn’t know what to say and mumbled something about being glad that things are working out for him. This person is doing many good things for his retirement, for example, recognizing his social needs and finding a way to meet them. But to risk losing everything on a pure speculative investment choice is one of the worst decisions someone can make in retirement.

And to compound this first mistake, this person now thinks he’s so smart that he will probably make other mistakes with his investments and those choices may not turn out so well for him.  It’s like playing roulette and putting everything on red, winning big and thinking “I’m in the zone and can’t lose; I’ll double down the next bet on black.”

I can envision this person buying options or speculating on stock futures or any of a number of high risk investment actions. If there is a strong correction in the stock markets, he could even fail to sell in time and lose all his gains or worse. If things turn out badly for this person, he may find himself working at that retail job for more than just social reasons.

There are at least five mistakes this person made with his investments:

  1. Guessing, gambling, speculating on future events
  2. Abandoning a sound asset allocation strategy
  3. Making an emotional decision
  4. Taking excessive risk
  5. Arrogance

I hope things work out for this clerk because I don’t want to see anyone penalized too heavily for an error in judgment like this. And I especially don’t want to see you making any of these mistakes with your retirement money.

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