An interview with nationally recognized investment expert Harris Nydick based on the book “Common Financial Sense” that he co-authored with Greg Makowski.
Everyone can have a wonderful financial future and can be financially independent.
How to Succeed in your Retirement Investment Plan:
1) Start as soon as possible.
People should be thinking about starting a 401k as soon as they get their first job. That way you will have 30-40 years until you retire. And during that time, your money will be growing at a compounded rate!
Assuming you make $45-50,000 a year, see if you can put away in your 401k 6% of your salary. It sounds like a lot, but it comes to about 50 bucks a week. With a reasonable rate of return, you’re going to have nearly two million dollars at retirement. Of that two million dollars, 3/4 is going from compounding, not from the money that you put in!
2) It is never too late to start investing.
If you’re starting later, you’re not going to have two million dollars at retirement, but you will still end up with a lot more than you thought. That is the gift of compounding.
3) Don’t spend time waiting for the “great” investment. Go for the “good” investments.
People think they need to invest in the “great” investment. Bad news, there’s not a lot of great investments that are self-evident right now. Investments that are great investments, were wonderful and especially good at a time before anybody understood them to be good. There’s not a lot of great investments out there and we spend our time sifting through the hay looking for those needles in the haystack. That’s a mistake because we really don’t need great investments.
What we need are good investments and the good news is there’s lots of good investments out there.
4) What you DO need is great behavior.
You must be able to take control of your emotions and every time the stock market goes down, there’s no reason to start selling.
Every 1-3 years, the stock market is going to lose 10%. That’s what we call a correction. Every 3-5 years, the stock market is going to lose 20%. We refer to that as a bear market. And every 5-12 years, the wheels fall off the wagon and that’s a crash. Every time, the market has always come back and gone on to new highs
Time and patience are what’s going to win the day. It’s just a matter of not listening to that voice in your head that says sell every time the stock market goes down.
The full interview
What’s the “big idea” behind this book?
The big idea is that you can do this. There’s no reason why you can’t. Unfortunately, the entire wealth advisory industry is built to serve the wealthy. Ask yourself, where is the seat of investment in education for the average worker in this country? It just doesn’t exist. What we sought out to do was write a book that could talk directly to the average worker in this country and say, you can do this. You can absolutely have a wonderful financial future. You can be financially independent. The fact is there’s only two kinds of employers in this country. Employers that look at their workers as their greatest asset or they look at their workers as their greatest liability. Either way, every one of their workers leaves every night and the employer has to hope like heck that they come back in the morning. This is another way for companies to engage their employees and help them help themselves. Whether or not they have an employee match on the plan, just by offering a plan, it gives them a chance to get ahead and shows the employees that they care about that. … Read more
Why was now the right time for this book?
The only book written about 401k investing for employees was 401ks for Dummies, which is a great book. The one issue that we have with it is that it came out almost 20 years ago and that was quite a few presidents, quite a few tax changes, and quite a few stock market crashes ago. The one nice thing about the book is that it was written by Ted Bennet. Ted Bennet was not only the author of that book but also was the inventor of the 401k plan. Ted was kind enough to write a thoughtful and insightful forward to our book as well.
Why are you best qualified to talk about 401K plans?
Greg Makowski, my co author, and I have been involved in the 401k business for 35 years and considering the 401k industry is only 40 years old, we’ve been in since nearly the beginning and we have helped many companies and institutions with their retirement plans. So much so that at some point we started speaking at industry conferences and then at national conferences and we’ve been very fortunate enough to be recognized by many other organizations such as Barron’s, Forbes, and Financial Times as experts in the 401k area.
When is the right time to start thinking about a 401K?
People should be thinking about starting a 401k as soon as possible. The day they get their first job is when they should be thinking. There should’ve been a course back in high school or college that talked about things you’re going to need to know once you get out of college. Things like how to balance your checking account balance. You should know about your credit rating and how to have a good credit score and of course you should know how to invest in a retirement plan. Unfortunately, such a thing doesn’t exist. The education that goes on around enrollment of your retirement plan is usually little to none and people are left to make their own decisions, which leaves most people, frankly, baffled and confused.
Can I be too late for a 401K?
It’s never too late. Listen, the best to start investing for your retirement was yesterday. The second best time would be today, and the third best time would be tomorrow, but not the day after tomorrow. You want to definitely get investing as soon as possible. Again, the benefit of investing early is you get to use the two greatest things available to you. You get the gift of time and everybody has the gift of time, hopefully, and you have the gift of compounding. And when you start young with the gift of time, again, you’ve got 30 or 40 years until you retire. You’ve got a long time before you have to think about taking the money out. You can spend a lot of time building your money. Assuming you make about 45 or $50,000, you put away six percent of your salary. It sounds like a lot, but it comes to about 50 bucks a week. You put 50 bucks a week aside, basically with a reasonable rate of return, at retirement, you’re going to have nearly two million dollars and that’s where the gift of compounding comes in. Of that two million dollars, three quarters of it is going to be from the compounding, not from the money that you put in.
What are some important lessons from the book?
It’s important that you start early and that you invest as much as you can afford to invest. If you’re starting later, you’re not going to have two million dollars at retirement, but your chances are very good and you’ll see through all the different graphics in the book, you’re gonna have a lot more than you thought you would. We spend most of our time on things that we can’t control. Things like the investments and the economy and interest rates, and inflation. We can’t control any of that stuff. But that’s where we spend most of our time and attention. There are other areas that we can spend that we have complete control over, that we can spend time. Things like determining what your timeframe really is, not just the age of retirement but think about your retirement years being added into that. You have to think about the level of risk that you want to take and other things such as that. That’s the first thing.
The second thing is people think they need to invest in the great investment. Bad news, there’s not a lot of great investments that are self evident right now. Investments that are great investments, were wonderful and especially good at a time before anybody understood them to be good. There’s not a lot of great investments out there and we spend our time sifting through the hay looking for those needles in the haystack. And I think that’s a mistake because you really don’t need great investments. What you need are good investments. Good news, there’s lots of good investments out there and that’s all you need. Here’s what you need great. You need great behavior. You have to be able to take control of your emotions and every time the stock market goes down, there’s no reason to start selling.
The stock market goes down, it always goes up again. History doesn’t repeat itself, but it does often rhyme. And what I mean by that is every 1 to 3 years, the stock market is going to lose ten percent. That’s what we call a correction. Every 3 to 5 years, the stock market is going to lose approximately 20%. We refer to that as a bear market and every 5 to 12 years, the wheels fall off the wagon and that’s a crash and these things happen, but every time it’s happened in the past, the market has always come back and gone on to new highs. I can’t promise that it’s going to happen the next time, but it’s never not happened.
What do you hope people take away from this book?
I hope that the number one takeaway is I got this, I can do this. We believe that in an hour and a half we can empower you to understand and to harness what you know. What I mean by what you know, what you know about yourself, not about investing. You don’t need any investment knowledge to succeed in this. The book gives you some basic stuff, but what you really learn is that you only need good investments. You need great behavior, but time and patience is what’s going to win the day. Time and patience is what’s going to win the day and you have time that you have patience. It’s just a matter of not listening to that voice in your head that says sell every time the stock market goes down, but you absolutely have this.