To retire happily, there's a lot to be said for commitment.
That is a commitment to saving a regular sum, no matter how small, and then investing this prudently over time.
In my investing life, I've come across a number of different personality types when it comes to investing (or non-investing as the case may be); everything from the dazed innocence of the 'bunny-in-the-spotlight' to (thankfully) the consummate and confidence-inducing professional.
Below are the five groups of people I've discovered, with their differing investment strategies, with only two of these groups confident of reaching a happy retirement:
- The Ostrich
There's not much that can be done for investors who fall into this classification. I actually use the term 'investor' quite loosely as there's not only a complete lack of interest in investing, there's actually a deliberate decision to keep 'life simple' due to investing being 'all too hard'.
Members of the 'Ostrich' group have superannuation of course (hence the term 'investor'), but they have invested nothing at all outside of their compulsory employer contributions, they take no interest in communications from their superannuation fund and they don't read much at all.
We're nowhere near the 'happy-retirement' stage here unfortunately. Help is on hand if only they would ask.
- The pre-disposed
There are people out there that have heard of the sharemarket… nd umm, that's about it.
Their awareness is limited to the mention of the 'All Ordinaries' in the snippet of sharemarket reporting that occurs between the sports and weather reports on the nightly news, and…
they're also opinionated.
They once read a newspaper headline in early 2009 that described plummeting sharemarkets, and that 'everyone had lost money'.
They know for a fact that sharemarkets always fall but admit that money can be made if only they were 'quick enough to buy and then sell'.
Unfortunately, there's no evidence a happy retirement will be reached here either! Moving along…
- The engaged (but inexperienced)
The majority of people I meet fall into this category. They consciously save money when they can, and are learning their way by buying shares. Actually, this category of investor has a lot of hope for future success as they know what they don't know, and are not only willing to learn about what they invest in but are aware of their own psychological biases and temperament.
They'll generally stick to buying their first shares in Telstra Corporation Ltd (ASX: TLS), Commonwealth Bank of Australia (ASX: CBA), or BHP Billiton Limited (ASX: BHP). With time though, and a lot of reading, their curiosity may lead them eventually to investment prospects beyond the S&P/ASX 20 Index.
- The resolute and no-nonsense investor
This investor is on track for good investment returns because they understand markets and are willing to look broadly across the ASX or internationally for the next good idea to fit into their portfolio.
They're across their superannuation and save regularly but are aware that not every stock they buy will be a winner. With prudent stock selection though, they believe a diversified portfolio will deliver good returns over time.
They'll take advice and invest in companies like Challenger Ltd (ASX: CGF) and Corporate Travel Management Ltd (ASX: CTD), which have performed admiringly since their respective listings, or Collection House Limited (ASX: CLH) which has performed poorly, but are nevertheless not broken by the experience.
They'll stick to a plan. These investors are predominantly wage-earners who have invested early and are looking good (figuratively speaking) for retirement.
- The Pro
These are the people that provide the advice to the category immediately above.
They're professional, provide investment advice full-time and, to paraphrase Warren Buffett, they eat their own cooking.
Not every stock selection of theirs will be necessarily successful but they have a solid track record and are financially incentivised to ensure your investments kickass.
Foolish takeaway
To retire happily, you'll need to commit to a regular savings plan and then invest for the long run.
You won't necessarily ever need or want to join category-5, but it's reassuring to know that the advice and reassurance that you pay for is always available (especially here at the Fool). If you haven't yet become a category-4 investor, read widely and start investing today if you haven't already.
With the appropriate investor mindset and a tonne of self-discipline, there's absolutely no reason why you should not look forward to eventual financial independence and a happy retirement.
