Ten Steps

Step One: The Difference Between Saving and Investing

This chapter offers a look at the thinking that damaged so many retirement portfolios: misunderstanding what saving is and where it should be used and what investing is. This section begins the conversation about what makes a good investor good: how they use the information available to them and when to react to it.

Step Two: Into Everyone’s Portfolio a Little Risk

Risk will be discussed at length in large part because many people have shied away from taking any risk in order to avoid loss. Here we will explore why risk in important and how it has played a role in the historical strength of the markets.

Step Three: You, The Business of Retirement

This section breaks down the business of you. Like every business, we will develop a plan that includes all of the assets and liabilities influencing in your success. We will discuss taxes and economic pressures (such as inflation), the role of your home and your job, and the ‘self-centered-ness’ you will need to achieve what we are trying to do.

Step Four: Arranging the Components of Your Plan

Building on step three, we will take a deeper look at those outside influences, paying close attention to the role your family plays in this process. This will involve a few personal finance refreshers, building a calendar of review dates, and a look back at what worked (and why) and what didn’t (and why).

Step Five: The Difference Between Assets and Liabilities

Even as we enter 2010 with home prices below what they once were only a few short years ago, with the economy slowly recovering (in some cases without much in the way of job creation) and our retirement plans is disarray, there is still a great deal of difficulty determining which is an asset and what is not. This balance sheet balancing played a role in how well you felt about your retirement plan. Your home was worth X amount, your portfolio was valued at Y, and your potential for earning ever increasing salaries, with benefits was calculated as Z. This step will help you get X,Y,and Z on the right side of the balance sheet and keep them there.

Step Six: Understanding the Changed Economy

The next fifteen years will see an economy unlike any that has ever existed. From looking at the macro-economy to your personal micro-economy, the influences that will affect your plan will be numerous. Success will take a keen eye on what these changes will mean to you. It will be key to remember that every plan is a plan for the worst outcome possible. This section will prepare you for what may be an inhospitable near-term future that will do everything in its power to disrupt your plan.

Step Seven: Long-Term is Dead; Long Live Long-Term

In the post meltdown era, the investor has assumed a ‘once bitten, twice shy’ approach to managing their retirement. This is a reasonable reaction. But it is not a very smart one. Adding all of the topics discussed so far, we will look at short-term decisions that have long-range goals.

Step Eight: The Tools at Your Disposal

The landscape inside your defined contribution plan has changed and in many instances, these changes were not improvements. Here we will examine the old products, the mainstays of every 401(k), the mutual funds and stocks, and discuss how they should be used. We will also look at the new products, the post-meltdown answers to your fears, the financial products that were created to ease you back into the marketplace. Not all of these new investment inventions are right for everyone. Some may simply be no good to you at all.

Step Nine: How to Predict the Future

No business, especially the business of you can succeed without predictions. Whom do you trust? Can you trust your own instincts to make the right choices, achieve the goals you have set and get there in a timely (and profitable) fashion? Which news is worth consuming and how you parse that knowledge will be discussed in this section.

Step Ten: Troubleshooting, A User’s Guide

This last section acts as a troubleshooter’s guide in the kind of investor you are. We will discuss numerous topics on how investors fall prey to loss aversion, narrow framing, and anchoring. We will look at the effect of diversification, herding and regret, the influences of the media and the possibility of misplaced optimism. Our discussion on risk will conclude with a look at the wide variety available, often hidden, inside our retirement plans and the investments we use to achieve those goals.

Previous Books by Paul Petillo

Hardcopy: Mutual Funds for the Utterly Confused (McGraw-Hill, 2008), Retirement Planning for the Utterly Confused (McGraw-Hill. 2007), Investing for the Utterly Confused (McGraw-Hill, 2006), Building Wealth in a Paycheck-to-Paycheck World (McGraw-Hill, 2004)

eBook: Mutual Funds for the Utterly Confused (McGraw-Hill, 2008), Retirement Planning for the Utterly Confused (McGraw-Hill, 2007), Investing for the Utterly Confused (McGraw-Hill, 2006), Building Wealth in a Paycheck-to-Paycheck World (McGraw-Hill, 2004)