The 6 Basic Principles (& 3 Common Myths) of Investing For Retirement


Ever decided you wanted to lose some weight, then saw the headline saying something akin to “THE Secret to Shedding Pounds Effortlessly”? After reading or watching the video, it turned out you needed to eat better, eat less, and move around more. Who freakin’ knew?! Turns out if we wanna build more muscle, consistent long term resistance training will do the trick. Stop the presses! The secret has finally made its way to the masses.

It’s always about principles established long before our time and will continue to be that way long after we’re all gone. There may be things about which some (most?) investors are unaware, but the info is readily available for the serious investor to find. Allow me to outline a few of some of these secret principles of investing for a magnificently abundant retirement, in no particular order of importance.

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The 6 Basic Principles (& 3 Common Myths) of Investing For Retirement

Principle #1: Be an expert or hire one.

A workable definition of what might qualify one to be an expert in a particular discipline is having done it for a minimum of 10,000 hours. Frankly, I think that’s a bit generous, as a mere five years of doing what I do didn’t qualify me as anywhere near being a bona fide expert. Looking back with 20/20 hindsight, I’d say 10 years was more like it, but that’s merely an opinion.

The do-it-yourself movement has done more to limit retirement incomes than almost any other factor I’ve witnessed. Whenever it’s been important to me to learn about any given subject, I’ve always chosen to learn from an experienced expert who had already forgotten more than I thought I knew.

Principle #2: Understand the proper timing of individual principles.

The most egregious and commonly made error illustrating this is the inordinate worship of cash flow regardless of timing. That doesn’t mean the investor doesn’t want all their properties to cash flow. It does mean that when retirement is a long time away, they don’t need inordinate cash flow, nor do they want to make it the primary goal. They clearly have more cash flow in life than they need, as they’re investing the huge surplus into real estate, for Heaven’s sake. Their need for maximum cash flow begins the day after they retire, and not before.

Principle #3: Steady, safe long term capital growth must precede maximum cash flow.

I’ve never understood why this seems to flummox so many. What, after all, is cash flow? It’s nothing more than a yield on a pile of gold, or if we’re fortunate, many piles of gold. The investor with the most/biggest piles gets the same X% yield as one who has a small stash of gold. Frankly, I’d rather average X% yield on $3 million than $500,000, but then that’s just me.

Principle #4: The more an investor insists on making cash flow the #1 factor from day one, the more their capital growth will shrink.

The other side of that same coin is also true: To the extent one strives for capital growth, cash flow will suffer. If $XXX capital can buy a nice investment property using 50% down payment, the cash flow will be impressive, relatively speaking. If, however, $XXX is used to acquire two investment properties using 25% down payments, there will still be cash flow, but the capital growth potential will double. Sounds simple, right? It’s even better than it sounds. Over time, as the wise investor continues to favor growth over cash flow, his potential retirement income rises impressively. Imagine doubling the capital growth multiple times over 15-35 years.


Related: Don’t Count on Social Security: Why It’s Crucial to Take Control of Your Retirement NOW

Principle #5: Investment strategies aren’t equal.

Buy ‘n hold forever, or never pay taxes when selling to improve your portfolio’s position, are two of the best ways I know to generate a disappointing retirement income. These strategies and many more are more or less based upon general formulas and beliefs that simply haven’t panned out in real life. I know, ‘cuz they were taught to me as if they’d been discovered on the third tablet Moses dropped on the way down the mountain.

I’ve watched ’em fail miserably, relative to other proven approaches since attending those courses nearly four decades ago. Yet those and other inferior strategies are used by investors to this day. Sadly, the bush-league results won’t be apparent to them ’til they near retirement, when most of the time it’s too late to correct.

Principle #6: Arbitrage is no more complicated than borrowing money at X% interest in order to invest that money to yielding far higher than X%.

For example, it’s considered bad form by most to refi their home at today’s rates, say 3.9% or so, in order to acquire various kinds of debt instruments secured by real estate, which yield 2-4 times 3.9%. Ironically, the comparatively high-yielding debt instruments (notes/land contracts) make it entirely possible to pay off the home loan in 10-20 years instead of the normal 30. Imagine the income one might develop over 10-20 years based upon just one refi of their home, implementing an arbitrage strategy.

Myth #1: Your work-related 401k will be a significant factor in your ultimate retirement income.

A nasty one Boomers know to be true in the worst of ways. They’re hitting 65 years old at the rate of at least 10,000 daily. Their average 401k balance is under $100,000. Generally speaking, they’ll cannibalize that relatively small amount in a few short years. Boomers’ kids shouldn’t have to suffer through that. Understand that in the 30 year period ending in 2014, the average annual yield for those years was under 4% for those in employer sponsored 401k plans. That’s directly from Dalbar Corp. who’s been doing very long term “look-backs” for quite awhile now.

Myth #2: Retiring on nothing but real estate income property is the best plan of action.

Geez, as a young whippersnapper I believed it too, so don’t feel like you’re alone in this. 🙂 Real estate values and the income we love so much go up ‘n down no differently than any other investment vehicle. It’s foolish to think otherwise. Still, people would much rather live in your rental property than their Toyota, right?

Having more than one source of retirement income is crucial to bumpin’ up the real life security of retirement. Look, clearly I love investment real estate. But in the end, having multiple sources of retirement income brings with it the ability to weather tough times.

Myth #3: The only way the investor can grow their capital is through asset appreciation.

That’s merely one way. There are other ways your capital can grow over the years without going up even a dollar. This is often when multiple strategies combined into a cohesive purposeful plan come into play. Applying multiple sources of investment income to enhance your own personal contributions oftentimes creates real capital growth. We should view asset appreciation as icing on the cake.


Myth #3: Superior planning will ensure the investor no attacks from Murphy will be successful.

O’Toole, Murphy’s buddy, makes short work of this myth in one sentence: “Murphy was an optimist.” The only benefit superior planning provides for the wise investor as it relates to bad times is to sometimes soften the blow of an ill-timed market-caused reversal. A stellar example might be the Dow crash of 2008. Those whose planning eliminated employer sponsored 401k plans, replacing them with more reliable investments, actually either preserved their capital or even made a little. Avoiding a 25-35% capital loss can cost the typical investor years just getting back to ground zero. It took the Nasdaq nearly 14 years to get back to the high they’d previously reached for that market crashed in 2000.

Related: Want to Escape a Soul-Crushing Job, Reclaim Free Time or Retire Early? Here Are 3 Feasible Paths to Take.

There are many more principles and myths out there, all ready to help or hurt us. The idea is to know exactly what we’re doing and why. Timing is so very important when we talk about investing for retirement, especially in later years, when time is no longer our best friend. The question going unasked far too frequently is, “How many questions do I simply not know to ask?” Like the sun settin’ in the West, you can bet the house on the fact the answers to those questions will be what generates the most heartache. Murphy knows where we all live, and everyone sooner or later gets their turn in his barrel.

Have any principles or myths to add to this list?

Leave them in the comments section below!

About Author

Jeff Brown

Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.


  1. Vincent Crane

    I still think it’s better to rely on retirement income from investment properties than to drain $300,000 in an IRA. Maybe 5% or 10% of people can actually save enough to retire. The power of leverage using rental properties and having them paid off for retirement income is a much better bet.

    • Jeff Brown

      Hey Vincent — I see your point, but it sits on somewhat of an either or vacuum. I have clients who’ll literally dwarf their income property retirement cash with their Roth plan incomes due to the non-Wall Street investments they made. You’re dead on about how few folks actually save enough to even think of retiring. But seriously, discounted notes over the long haul inside a Roth wrapper is and will remain a huge winner on many levels.

  2. Kevin Polite

    “Buy ‘n hold forever, or never pay taxes when selling to improve your portfolio’s position, are two of the best ways I know to generate a disappointing retirement income.”
    Are you saying that to someone that things they should never sell any of their properties? I have an uncle who in Dallas who bought properties in an area that was really bad 20-25 years ago, but are values have increased immensely during that time. He kept all of them and he sons are doing very well now.

  3. chris carollo

    My plan is a modified Buy N Hold Forever strategy that I’m combining with a monopoly plan over the next 5-10 years. Taking each single family rental(Mostly paid off by then) and either starting all over again or buying larger multi units or commercial and letting someone else manage them. Great article!

    • Edward Synicky

      I have found it very simple and profitable to never sell, 1031 into larger properties, never paying capital gains taxes, passing it all to my children at a step up basis and living quite nicely on free and clear income producing property. I didn’t realize I did it all wrong.

  4. Jeff Brown

    Not wrong at all, Edward, just different school of thought. My clients, me too for that matter, prefer to hit retirement with a larger income and net worth, AND be able to pass it on to the kids. It’s all based on that with which we’re comfortable, right?

  5. Michael Dacey

    Hi Jeff, Just came across your posts, loving your advice! I will be moving to maximize assets at expense of cash flow now to prepare for retirement. Can you explain “or never pay taxes when selling to improve your portfolio’s position”. Do you mean pay taxes on a sale when upgrading to a new property instead of taking full advantage of 1031?

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