Incorporating the best of retirement investing basics into your portfolio planning can help you end up with a lot more money

Understanding what you want from retirement is one of the most important things you can do while you’re still working. This is why our best retirement planning advice is to invest early and often.

On the other hand, if you’re heading into retirement and short of money, you should move your investing towards another retirement investing basic tip: aim for safer investments, rather than taking one last gamble.

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Retirement investing basics: Moving into some “safe” investments could cut sharply into your portfolio returns

This applies as well to “risk-reducing strategies,” of which there are many. One of the most common rules you should ignore is the urge to “go into cash” (also known as “taking money off the table”) when you foresee a market downturn. Like all risk-reducing strategies, this one can seemingly work from time to time, by getting you out of the market before a drop. But it’s even more effective at ensuring that you are out of the market when prices are shooting upward.

In the stock market, downturns do come along from time to time. But they are far less common than fears of downturns, which are virtually non-stop. We usually have an opinion on the market outlook. But as you know, we downplay predictions, ours included, due to the random factor. Instead, we look for opportunity and diversification, and we focus on the long term.

Retirement investing basics: Use conservative expected return calculations to allow for unforeseen setbacks

As for the return you expect from investing for retirement, it’s best to aim low. If you invest in bonds, assume you will earn the current yield; don’t assume there will be increases in the value of the bonds.

Over long periods, the total return on a well-diversified portfolio of high-quality stocks runs to as much as 10%, or around 7.5% after inflation. Aim lower in your retirement planning—5% a year, say—to allow for unforeseeable problems and setbacks.

Above all, it’s important to remember that while finances are important, the happiest retirees are those who stay busy. You can do that with travel, golf or sailing. But volunteering, or working part-time at something you enjoy, can work just as well.

One thing we encourage all successful investors to do is perform a detailed study of how you spend your money now. Then, you analyze your findings to see what personal expenses you can cut or eliminate. This too can have fringe benefits, especially if it helps you break unhealthy habits. You may be surprised at how much you’re spending and how much more you could be saving for retirement.

Don’t let the direction of the stock market distract you from focusing on sound retirement investing

The funny thing about a financial plan is that you can actually make it less effective if you try to improve it. For instance, you may decide to vary how much money you invest every year, depending on your view of the market outlook. And that’s likely to cost you money at least half of the time.

If you invest more money in years when you’re confident about the economy or market, you may wind up buying more shares when prices are high. If you cut back on your investing in years when the outlook is uncertain, you’ll buy fewer when prices are low.

In the course of your investing career, you’ll make some good guesses about market direction, and some bad ones; overall, they are likely to average out. That’s why it’s best to keep to your plan no matter what the market does. It’s much easier to spot high-quality investments than it is to try and predict the next shift in the direction of share prices.

This plan is virtually guaranteed to produce great results for you if you start early and stick with it. However, few investors do that. Many investors simply run into too many ways to get sidetracked, and they fail to stay with the steady approach embodied in our Successful Investor philosophy.

Use our three-part Successful Investor approach for all of your investing, including for retirement

1. Hold mostly high-quality, dividend-paying stocks.
2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
3. Downplay or stay out of stocks in the broker/media limelight.

What would lead you to becoming more aggressive with retirement saving as you grow older?

How hard have you found it to stick with a retirement investing plan?