Thursday, August 28, 2008

Do-it-Yourself Retirement Plan

For your retirement plan, do you have to rely on financial advisers? Or can you build your own retirement plan? Yes, it is possible to run your own retirement plan, and in many countries you are allowed to do so.
But building a retirement plan takes time and effort – it is no good just putting your money into one thing like a group of equities and leave them alone. You might scan the financial pages of the paper one day to find your retirement plan had lost 30-50% of its value!
To build your own retirement plan, you will need to spend, say, an hour a week managing it, and more time reading.
How does the Big Picture affect your retirement plan?
The reason you need to keep in touch with what is happening in the investment world is that you need to see the Big Picture well to make your retirement plan work. What do I mean?
You need to know:
1. Whether the economy is growing or flagging or in recession.
What is expected to happen with inflation over the next two years or so – and keep getting it right.
Is the stock market in an uptrend, going sideway, or going down – these trends can last from one to 10 years.
How high are interest rates relative to inflation.
Here are some examples. If real inflation was zero, and interest rates were 10% - you might just stick bonds in your retirement plan. It would be that simple.
Alternatively, if you knew that the stock market had just embarked on an uptrend that would last ten years – then you might put good quality stocks in your retirement plan.
If inflation is growing, and likely to grow in the future, then you might want to put lots of property, gold and/or silver coins or bullion and collectibles in your retirement plan.
These are just extreme examples. However, life is rarely like that, while investment advisers – who are mostly salesmen – will tell you that the outlook is good for stocks whatever is happening. Generally, it is necessary to have some of your retirement plan invested in government bonds, some in stocks and some in property bonds. If the stock market is weak, then a Bear Fund may be appropriate.
If you are prepared to study the stock market, and follow the long trends, it may be worth managing your own retirement plan. However, you should seek professional advice whatever you do.
Disclaimer: This information is not intended as investment advice, but is intended to show how things can behave differently at different times. Do not use this information as investment advice for your retirement plan or anything else – consult a professional advisor.

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