A lot of ink is being spilled over a close but clear vote among Britons to leave the European Union, known as Brexit. You’ve probably seen lengthy explainers on why the vote matters to investors and what you should do about it.
Hogwash, plain and simple. Sure, it’s a big deal — if you’re British. It’s important, but less so, if you’re involved in managing a European corporation that does a lot of business in London. The Dow Jones Industrial Average and the S&P 500 Index, however, both shrugged it off over a single weekend
As they say in New York, fuggedaboutit. Doesn’t matter now, didn’t matter before, won’t matter to you in a year, five or 20, which is the real time horizon we all face as retirement investors.
In fact, here are five investment trends that truly will affect your retirement outcomes and about which you should take action right now, today:
#1: Stop buying individual stocks
Jim Cramer doesn’t have a hot stock tip for you. Nobody does. It was at least arguable that stock selection mattered a few decades ago, but the data hasn’t supported stock picking for years. Some of your picks will do great. Some will do horribly. Once you net out your gains, you’ll find that the risk isn’t supported by the return. Index investing reverses the equation, lowering risk while ensuring steady positive returns over the years.
#2: Stop paying mutual fund managers to buy stocks for you
Having a load of initials after your name on a business card does not grant one superpowers. In fact, fund managers are up against exactly the same problem all investors face: Extremely limited access to actionable information. We live in a world in which hedge funds trade using lasers, of all things. Markets are not efficient, they’re nearly perfect. Sure, there can be dislocations, real ones. But the chance of any given fund manager guessing when and by how much is not good enough to warrant the constant, grinding weight of their fees.
#3: Diversify your investments pronto
The problem for people who feels exposed by the whole Brexit mess is that they were not properly diversified. They likely own too much stock for their personal level of risk tolerance, or they took on a lot of exposure to Europe on the bet that the vote would be to stay, not leave. If you own global index funds you are exposed to Europe for sure, but not in a concentrated way that demands action. Rather, as other people sell off in Europe, your index fund will rebalance and buy those declining positions.
#4: Start asking questions about fees you pay
That’s the anchor around the neck of your performance, right there. Financial advisors charge on average 1% of your assets. Mutual funds combine to charge another 1% or more. Pay out 2% of your portfolio balance in fees every year and your return will suffer no matter what you did about Brexit.
#5: Save more, period
People get bent out of shape about their investments when the news is bad and get altogether too excited when things seem to be going great. Yet almost nobody saves enough cash to invest in the first place, so why worry about a short-term market event? Focus instead on learning how much you really need to save to retire on time. Then worry about how to invest it in a properly risk-adjusted portfolio.
These five changes will make an actual difference in your retirement date. Even a small move lower in fees could mean leaving your job months earlier than otherwise. Years from now, you won’t remember why the Prime Minister of England quit his job. You will wonder why you’re still working at yours.