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The Keys to Financial Success Are Incredibly Mundane (Sorry!)

Stop looking for investment alchemy; it's the boring stuff that really matters.

Do you have any annoying eaters in your life?

I don't mean picky kids, people with actual allergies or other sensitivities, or eaters with specific, well-defined preferences. (My beautiful vegan nieces, you are forever welcome at my table.)

What gets annoying to me is when people start treating food like it's part of their own personal science project. Aided and abetted by pseudo-food scientists peddling cookbooks and packaged meals, they surmise that if they could only find precisely the right things to eat--or avoid--they'd be able to start losing weight and running marathons. So they jump from fad to the next; one week they're avoiding gluten, a month later it's dairy, then they're drinking cider vinegar. If you dare raise the possibility that eating and feeling well is more about boring old balance--focusing mainly on whole, plant-based foods while also allowing the occasional indulgence--than it is any sort of nutritional alchemy, they don't want to hear it. They'd rather keep searching for the magic bullet.

What I find interesting--and at least a little crazy-making--is that a nearly identical phenomenon exists in the realm of finances. Just as many people seek a magic nutritional formula to help them get in shape and feel better without a lot of sacrifice, so do many people gravitate toward investment alchemy to help solve their financial problems. If they can just find the right mix of investments for their portfolios, they think, or hit on a hot stock or two, the rest of their financial plans will fall into place without a lot of heavy lifting on their part.

Unfortunately, some financial professionals cater to that mindset. Some investment advisors--especially those with products to sell--are all too eager to pander to the notion that investors can reach their goals without significant sacrifice; their investment portfolios can work their magic. Last year I shared a story of a friend whose advisor had diagnosed his portfolio as being too light on small caps and in need of annuity. My recommendations were a lot more mundane: I thought my friend needed to step up his savings rate and build more of an emergency cash cushion because he's self-employed. Of course, it's possible that his advisor communicated some of those same ideas, too, but my friend tuned out the advice. Watching your money grow on its own is a lot more fun than reducing spending in order to save.

Of course, investment selection matters. has an unparalleled array of tools for picking stocks, mutual funds, and exchange-traded funds that align with your goals. Luck invariably plays a crucial role in financial success, too, even though a lot of the lucky ones among us don't like to admit it. But don't underrate the mundane financial jobs--the no-fun, super-unsexy financial equivalents of eating lots of fruits and vegetables and logging 10,000 steps a day. Do a passingly decent job with them over many years and it's a near-certainty the rest of your financial life will fall into place.

Here are some of the key ones to focus on.

Maintain an Appropriate Saving/Spending Rate This one is near the base of my "investment pyramid" for an obvious reason: Even if you make killer investment selections, it's tough to make a plan work if you haven't saved consistently and lived within your means both before and during retirement. If you're in accumulation mode, a key step is to gauge the adequacy of your savings rate. High-income investors saving for retirement need to stretch beyond maxing out their company retirement plans and IRAs. And while most people stop saving when they're retired, maintaining an appropriate portfolio-withdrawal rate is essential to good financial health.

Nurture Your Human Capital If you're just starting out in your career, you're long on human capital and your financial capital is likely small. How much you can contribute to your investments--not the gains on them--is going to be the biggest share of your portfolio's growth at that life stage. The best and most painless way to increase those contributions is by enlarging your earnings and not overspending (see the above). That's why investing in human capital--through additional education or training--is such a smart use of funds if you're just starting out in your career. If you can increase your earnings power with such an investment, you have a long time until retirement to benefit from it. Big outlays for education may not pay off (financially, at least) later in life, but mid- and late-career accumulators should still work to burnish their own human capital through networking, attending conferences in their fields, learning new technologies, and taking advantage of additional training.

Develop a Sane Asset-Allocation Mix Asset allocation can seem hopelessly black-boxy, but it's useful to remember that your financial capital should align with your human capital. When you're young and long on human capital, your own earnings power is your biggest asset. It makes sense to invest aggressively (at least as aggressively as you can stand) because it's unlikely you'll need to rely on your investment portfolio for living expenses for many years. You can afford to withstand more volatility, and that means more stocks. As you get older and get closer to drawing upon your portfolio, you'll still want to make sure your portfolio has growth potential, but you'll also want to steer more into safe investments because you don't want to be in the position of withdrawing from investments as they're falling. An asset allocation that factors in your own situation is key in the accumulation years; retirees can back into a situation-appropriate asset allocation using a bucket strategy.

Don't Skimp on Insurance We don't talk a lot about insurance on because we're an investing site, not an insurance site. But investing won't protect you against big risks--only insurance products can do that. That means the best health insurance and property and casualty insurance you can afford, of course, but also disability insurance, life insurance if you have dependents, and an umbrella policy to protect you in case you get sued. Older adults should, at a minimum, consider long-term care insurance; while it's controversial, don't rule it out before doing your homework. Whether you end up claiming anything from these policies is beside the point; the idea is to protect yourself financially from catastrophic risks that could otherwise derail your plan. And of course, knowing you're insured provides immeasurable peace of mind.

Limit Investment, Tax, and Behavioral Costs Mutual funds--especially index funds and exchange-traded funds--are in the midst of a fee war. That's all for the good, but fund expenses aren't the only cost investors face. Investors may face transaction costs to buy and sell, fees if they rely on a financial professional for advice, and administrative costs in their company retirement plans, to name some of the key ones. Tax costs can be a further drag on bottom-line returns. All of these expenses look pretty innocuous on a stand-alone basis, especially because they're often expressed in percentage rather than dollar terms so they don't look like real money. But compounded over a typical investing time horizon of 50 years, they can mean the difference between a plan that's on solid footing and one that's on shaky ground.

And speaking of costs that erode returns, one of the biggest costs all of us investors face is the toll that irrational, emotion-driven decision-making can take on our returns--selling when we're nervous and buying after the easy money has already been made. That means that you need to understand the difference between risk capacity and risk tolerance. And if some soul-searching leads you to conclude that your emotions have contributed to financial decisions that you regretted later on, money spent on professional financial guidance can be money well spent.

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About the Author

Christine Benz

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Christine Benz is director of personal finance and retirement planning for Morningstar, Inc. In that role, she focuses on retirement and portfolio planning for individual investors. She also co-hosts a podcast for Morningstar, The Long View, which features in-depth interviews with thought leaders in investing and personal finance.

Benz joined Morningstar in 1993. Before assuming her current role she served as a mutual fund analyst and headed up Morningstar’s team of fund researchers in the U.S. She also served as editor of Morningstar Mutual Funds and Morningstar FundInvestor.

She is a frequent public speaker and is widely quoted in the media, including The New York Times, The Wall Street Journal, Barron’s, CNBC, and PBS. In 2020, Barron’s named her to its inaugural list of the 100 most influential women in finance; she appeared on the 2021 list as well. In 2021, Barron’s named her as one of the 10 most influential women in wealth management.

She holds a bachelor’s degree in political science and Russian language from the University of Illinois at Urbana-Champaign.

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