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Five Things More Important to your Retirement than Rate of Return

My friend, Bert Whitehead, author of Why Smart People Do Stupid Things with Money: Overcoming Financial Dysfunction , is one of the best financial planners I know. His experience and perspective help me keep myself and my clients on the things that are really important to achieving their financial goals.

Much is made of the rate of return we receive on our investments. But how important is the rate of return in the context of our overall financial life?

Not as important as we might think. Here are five of Bert’s “Top Ten Factors Affecting Our Financial Futures”, beginning with the most important. I will address the other five tomorrow.

1. How much you earn.  This the single most important factor that determines your financial future. You need to have an income that will support the current life style you want and that will allow you save the amount necessary to live the future life style you desire.

2. Wise shopping and spending. Making good decisions about how much you spend allows you to need less in the future and to save more. These decisions include decisions about what type of car you drive, how frequently you buy a new car, the type of house you live in, where and how often you dine out, etc.

3. How much you save in permanent savings not “in and out” savings. The amount of money you are able to put away for retirement each month will determine if you are able to retire when you want to.

4. Your tax burden. There are things that you can do to reduce your overall tax load. Good tax management can usually save you significant money – that will allow you a better life and a higher savings rate.

5. The diversity of your investment portfolio across asset classes. Proper diversification of you investment portfolio allows you the appropriate return for minimal risk for your investments.

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