Over the weekend, I came across this little gem of an article: “Examining the most hated bull market ever 10-20-17“. It’s from a site called “real investment advice”, and it’s got some advice for you on retirement.

Now I’m sure that the people who write these things are well-meaning. But let me offer some cautionary context.

The world is full of financial self-help

As long as you know that most of it is also quite self-serving.

Here are some core beliefs that almost every conservative financial advice site has in common:

  1. This is all a massive fiat-driven bubble.
  2. The market is about to crash.
  3. Passive investing is a ridiculous idea.

Which is quite convenient for a site that moves on to sell you financial advice. You get people panicked, and then you make sure that they think you’re the only alternative.

Apparently, America’s Retirement Savings Problem Is Passive-Investing’s Fault

Here’s a dash of real advice (none of the emphasis is mine):

While investors may “get back to even,” eventually, following a crash, the shortfall from their actual financial goal continues to build.

This is why using some method of risk management, such as a simple moving average crossover, can help alleviate some of the financial damage caused by drawdowns.

  • YES! You will miss out on some gains in the market.
  • YES! Sometimes you will be “stopped out” and have to “buy back in.” 
  • YES! You will be much more successful in obtaining your financial goals long-term.

After all, isn’t that why you invest in the first place?

What I can assure you of is that you WILL be wrong from time to time and you WILL lose money. But that is the inherent nature of investing. It is a “RISK” based endeavor.

However, I can absolutely guarantee that trying to “passively index” in the current market environment will absolutely wind up screwing up your long-term goals.

Think about it this way. IF investing was as easy as just buying a bunch of stuff and sitting on it, then why are so many Americans dependent on Social Security for retirement?

financial self serve

Paraphrasing:

  1. Investing is risky!
  2. I have a ‘simple’ method that can help you do well. You might lose some money some of the time – but hey, that’s just investing!
  3. But if you’re using a passive-index fund, you’re guaranteed to lose everything. You’ll absolutely be left with 100% nothing.
  4. That’s what all those morons on Social Security did. They invested in passive-index trackers.
  5. Slackers.
  6. Think about it this way: ask yourself a really absurd question. Like, if reading was as easy as just buying a book and reading it, then why do Americans watch so much TV?
  7. Answer: passive investing is evil.
Retirement Math

For the most part, the reason that people may not have enough for retirement is not “your investment choice will turn out to be the wrong one”.

It’s “you won’t have saved enough”.

“Think of it this way”: you work for about 30 years, and you could live for another 30 years (or even more) after that. If you don’t save at all, then your investment choice is irrelevant. And if you only save something notional (like 3% of your income) for retirement, then your investment has to generate the equivalent of a lottery-style win.

For my money, the best investing advice you can get for retirement savings shouldn’t start with an investing strategy at all.

Rather, this order of priority:

  1. Try to save 15% of your salary each month.
  2. If you can do a bit more, do a bit more. But only a ‘bit’. You don’t want to save to the point where life is no longer worth living – because then what is the point?
  3. Mentally prepare yourself to work for longer than your parents and grandparents did. “Early retirement” is mostly for people that never had to work in the first place.
  4. Try and get the best tax efficiency out of your savings method.
  5. Then once you’re done with all of that, you can give some thought to the best investing strategy.
  6. Which may well include a passive index tracker.
  7. Because at least you can be guaranteed that you’re paying less in asset management fees. And in the long run, those build up.

For more, this post: “Have you done the math?”

And when it comes to internet-based ‘free’ financial advice (mine included), polite skepticism is healthy.

Rolling Alpha posts opinions on finance, economics, and sometimes things that are only loosely related. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha. Also, check out the RA podcast on iTunes: The Story of Money.