For many years I have followed the writings and podcasts of Paul Merriman, a financial adviser based in the USA.  Recently Merriman has retired but continues to write and publish on financial advice particularly investment advice topics.  In a recent article 10 do's and don'ts for retirement investors he looks at 5 key dos and 5 key dont's in retireement.  Even though the comments are focussed on retirees in the US the broad concepts are just as relevent for us here in Australia.  So here are the 10 items for your consideration:

Retirement do’s

1. Do take advantage of “the only free lunch on Wall Street” by building a diversified portfolio of mutual funds (managed funds in Australia). This will reduce your risk and probably increase your returns.

2. Do buy funds with the lowest possible expenses. The average equity fund charges more than 1.3% a year, yet you can get most of the asset classes you need in good funds for a full percentage point less than that. This is equally important for bond funds.

3. Do buy index funds instead of actively managed ones. This will be a big help in achieving both of the prior “do’s” I mentioned.

4. Do invest in equity asset classes with long histories of successful returns. Based on years of careful study by academics I trust, this means U.S. large-cap blend, U.S. large-cap value, U.S. small-cap, U.S. small-cap value, international large-cap blend, international large-cap value, international small-cap blend, international small-cap value, and emerging markets. And for tax-deferred accounts only, it means U.S. REITs. (In Australia the asset classes include Australian large-cap companies, Australian value style companies, Australian small-cap companies, International large/value/small cap companies, emerging markets and Australian and international REITs)

5. Do invest in the most tax-efficient manner. Unless you have unusual circumstances, that means maximizing your IRA and 401(k) accounts and (when you’re living off your money in retirement) using up your taxable accounts first. (In the Australian context this is about effectively utilising superannuation and superannuation pension accounts)

Retirement don’ts

1. Don’t pay a sales commission to buy or sell a mutual fund. The commission is money that’s gone forever from your nest egg, and it inevitably and permanently diminishes the return you will get. (In Australia you can no longer buy funds that have commissions attached but any existing managed funds may still maintain a commission structure.)

2. Don’t buy funds in asset classes with low expected returns or high levels of risk relative to their expected returns. Among the most prominent examples of asset classes you should avoid are commodities, gold and technology stocks. In addition, I think you should steer clear of pure growth funds, whether they invest in large-cap, midcap or small-cap stocks — and this includes international funds as well as U.S. funds.

3. No matter how much you are attracted to an active manager, don’t buy actively managed funds. This is really another way of stating my third point above. Actively managed funds are guaranteed to have higher expenses than index funds, and their returns aren’t likely to be as high as those of index funds.

4. Don’t speculate with your portfolio, even a small part of it “for fun.” If you have a properly diversified portfolio along the lines that I recommend, your investments will include all the “great opportunities” you will ever need. Speculating and playing the market will almost surely reduce your long-term returns. 
   
   If you absolutely can’t resist trying your luck, then spend (notice I am not saying “invest”) a bit of money that you can afford to lose and buy a lottery ticket.

5. Don’t get snookered into thinking you have found a guru or anybody else who knows what will happen to the market in the future beyond statements such as “Stocks will go up in the long run.” Many people claim to have that knowledge, but nobody does. The sooner you can accept this fact the sooner you will be in touch with reality. 
   
   When you are in touch with reality, you are likely to invest more intelligently and productively.

These are great insights from a man with many more years of experience than me and well worth consideration for you investment portfolio.

Regards,

Scott