In the realm of personal finance, sensible retirement planning and the fear of missing out (FOMO) often stand at odds with each other. It’s a balancing act between securing a comfortable retirement and succumbing to the allure of quick gains and trendy investments that may harm your long-term plan.
That dichotomy, pitting practicality vs emotion, is particularly manifest today as people are more worried than ever about whether they’ll have enough money to live the retirement lifestyle they desire. Some people who haven’t saved enough may be more prone to take investment risks to make up for lost time. But even people who have been disciplined and built a nice nest egg may be drawn to high-risk, high-reward opportunities that, if successful, can strengthen their retirement funds.
The temptation is real. The siren song of investment trends promising overnight wealth can overpower careful and structured planning, enticing people to chase fleeting opportunities while potentially jeopardizing their long-term financial health. You cannot avoid tempting headlines with meme stocks, cryptocurrencies or artificial intelligence (AI).
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But to better ensure your future financial security amidst the noise of market euphoria, it’s crucial to refocus on fundamental principles that result in a stable, consistent and sustainable retirement plan. True financial security is not built on chasing every hot trend but rather on a solid foundation of prudent planning and disciplined investing. Here are three tips to consider to help you keep your eye on the ball:
1. Have realistic goals, align investments accordingly.
Setting realistic goals is paramount. While double-digit returns and soaring stock prices can be captivating, it’s essential to ground yourself in financial realism. Identify your financial goals and let them guide your investment decisions. When considering a new investment, make sure it aligns with your goals and your risk tolerance.
One fundamental philosophy of saving is to put 10% to 15% of your paycheck in a tax-advantaged retirement account (401(k), 403(b), traditional IRA or Roth IRA). Estimate your retirement needs, starting with your annual living expenses, while factoring in the possibility of higher health care costs. Consider the various income streams you’ll have in retirement, including Social Security, pensions and retirement plans. From there, you can determine the amount you need from your investment portfolio.
When examining your projected retirement budget, conduct a stress test on your investment portfolio; that way, you can see if your cash flow can withstand the demands of your retirement lifestyle and any downturns in the markets. A stress test helps you prepare for potential challenges and adjust your investment strategy.
2. Don’t let emotion drive your decisions.
Emotions cloud your judgment and can trigger impulsive decisions that result in bad financial decisions. The over-eager investor may purchase at an inflated price. Don’t fall prey to impulsive decisions, which can cause you to neglect long-term goals.
For example, in pursuing quick gains, investors may forsake diversification and focus on a single asset or sector, making them more vulnerable to market fluctuations. Develop a long-term strategy and stick to it, irrespective of short-term market fluctuations. Do the research. Stay updated on market trends, investment vehicles and economic developments. Engage with financial resources, such as books and seminars, to empower yourself with knowledge.
3. Diversify your portfolio.
Diversification means dividing your money across a variety of asset classes and investments, helping reduce your risk while not sacrificing too much in returns.
Stocks potentially offer the highest return over time but can fluctuate over shorter periods. A diversified portfolio contains assets such as bonds, mutual funds, certificates of deposit, real estate and savings accounts. By owning multiple assets that perform differently, you can reduce the overall risk of your portfolio. You won’t achieve significantly high returns from owning a rapidly growing stock, but you also won’t be as susceptible to market ups and downs.
A structured approach serves as a practical framework for navigating the complexities of financial planning while safeguarding against the lure of FOMO-driven impulses.
Be mindful that while diversification can reduce risk, it doesn’t eliminate all of it. For example, with assets sensitive to interest rates, such as bonds, diversification won’t protect you from the threat of rising rates generally. Also, some investments — like certificates of deposit (CDs) — are threatened by inflation.
The journey toward a secure retirement is fraught with temptations and distractions. Retiring confidently requires discipline, patience and a steadfast commitment to long-term goals. By focusing on what truly matters to you in retirement, maintaining realistic expectations and seeking professional guidance when needed, individuals can navigate the complexities of financial planning with confidence and without succumbing to FOMO.
Remember, it’s not about chasing trends. It’s about building a solid foundation for a fulfilling and financially secure retirement.
Dan Dunkin contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
Related Content
- In Retirement, Put Your Eggs in These Three Baskets
- The Five Stages of Retirement (and How to Skip Three of Them)
- Six Financial Actions to Take the Year Before Retirement
- Five Things I Wish I’d Known Before I Retired
- Retirees’ Anti-Bucket List: 10 Experiences You Don’t Want
-
‘I Play Pickleball in Retirement.’ Is It HSA-Eligible?Retirement Tax Staying active after you retire may be easier with these HSA expenses. But there’s a big catch.
-
What New Tariffs Mean for Car ShoppersThe Kiplinger Letter Car deals are growing scarcer. Meanwhile, tax credits for EVs are on the way out, but tax breaks for car loans are coming.
-
Five Mistakes to Avoid in Your First Year of RetirementRetirement brings the freedom to choose how to spend your money and time. But choices made in the initial rush of excitement could create problems in future.
-
I'm an Investing Expert: This Is How You Can Invest Like Warren BuffettBuffett just invested $15 billion in oil and gas, and you can leverage the same strategy in your IRA to potentially generate 8% to 12% quarterly cash flow while taking advantage of tax benefits that are unavailable in any other investment class.
-
Integrity, Generosity and Wealth: A Faith-Based Approach to BusinessEntrepreneurs who align their business and financial decisions with the biblical principles of integrity, generosity and helping others can realize impactful and fulfilling success.
-
How Much Income Can You Get From an Annuity? An Annuities Expert Gets SpecificHere's a detailed look at income annuities and the factors that determine your payout now and in the future.
-
Your Paycheck Stops in Retirement, But Your Life Doesn't: An Expert Guide to Planning for a Confident FutureSocial Security will replace only about 40% of your salary, on average. A solid financial plan will help you plug the gap so you can rest easy in retirement.
-
Are You Jeopardizing Your Future to Help Your Adult Kids? An Expert Guide for How to Not Do ThatIf your adult child needs financial help, of course you want to provide it, but crafting a plan that also protects your financial and emotional well-being is vital.
-
I'm a Financial Planner: Here Are Some Long-Term Care Insurance Tips for Every AgeStrategies include adding riders to life insurance for younger individuals and considering hybrid or traditional long-term care policies for those in their mid-50s and 60s.
-
Engineering Reliable Retirement Income in 2025: An Expert GuideFor dependable income, consider using a bucket strategy and annuities in tandem to promote structure, flexibility and peace of mind.
