1. Focus on the size of your nest egg not your monthly performance
Did you beat the S&P500 (^GSPC)
in the first quarter? Trick question. The real answer is that it
doesn’t matter. After you retire you won’t be able to pay your bills on
outperformance. You need to build wealth. That means patiently
contributing to a retirement fund not outperforming your neighbor.
“What matters is that when you
retire you have enough income to pay yourself,” suggests Munson. Brag
about your performance all you want but if you can’t spend it in a
grocery store after you retire it doesn’t count as real money.
2. Trade less
For all the attention brought to
the dangers of trading on Wall Street the fact is it’s never been easier
or more efficient for individuals to daytrade. As Felix Salmon
pointed out yesterday most transaction never get anywhere near a
trading floor. Execution and commision are fine, the problem is trading
itself.
Munson suggests carving out a
small trading account for your speculative investments. Most investors
have a little gambler in them. Rather than pretend otherwise carve out
some speculative assets for your higher-risk speculations but keep your
retirement funds sacrosanct.
3. Trade smart
Munson was once a high-flying NY
trader. Now he’s seen the light, focusing on building long-term wealth
for more passive investors. He’s found the switch to “boring” to be much
more profitable than when speed trading.
“Get a plan and be very, very
boring. If you want to make more money it’s not about chasing alpha or
chasing down trades. It’s about systematically working a plan.”
People who absolutely must trade
can carve out their speculative accounts as suggested above but they
should expect to lose. That being the case Munson would rather take his
cash and go to Vegas. “I prefer casinos where you get a free show and a
buffet.”
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