2023-03-12 On retirement investment strategies

The importance of retirement money

Eventually, our income supply will probably run out, thus there is a need to save up for retirement.
Ideally though, one should probably get to making a decent stream of passive income to never have to worry about retirement. I am still working on that. Watch this space. I hope.

The difficulty

One difficulty remains still, which is moving the money out of the financial group that the employer may contract with, to one's own chosen bank retirement account such as Charles Schwab.

Otherwise, there should be no difficulty, especially for many jobs, which often contribute around 5% to most retirement funds. One gets to choose where one's money is invested in.

My approach

Passive. Lazy. Secure. Data-driven.
Those 4 descriptors perfectly describe the total stock market index fund (eg. Vanguard has a great total stock market index fund).
Security Analysis and The Intelligent Investor both describe the approache of putting money into a total stock market Index fund as one that accurately tracks the average stock market real return of 7% per year, and this approach is based on decades of data.

Notably, the prospectus for the index funds in my retirement account, shows returns of 10-13% / year historically. In all honesty, that was probably the first time I actually read an investment product prospectus. Meanwhile, neutral funds tend to only go to about 3 to 5% per year. Given that mutual funds often rebalance their portfolios. At the end of the year, there is especially a lot of turnover, and picking and choosing of stocks, which leads to overall less return, and higher expenses, including management fees.

Additionally, while there is a lot of talk and common knowledge that one should diversify, this tends to result in over diversification. When it comes to most mutual funds, you will have to see distributions among 10 to even 50 different stock companies. There’s no way one can keep up with that amount of companies. With the total stock market index fund, the fund manager only has to copy the actual total stock market index distribution, which is a very dead easy job, which also explains why the management fees for this fund extremely low, and thus fees for the customer are also low.

Recommendations

Obviously not financial advice. Consider investment in a total stock market index fund, especially for retirement accounts. But it also works really well to just put it into your normal investment account and see how one goes over 5-10 years.