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Why "Beating The Market" Should Never Be Your Goal In Retirement Thumbnail

Why "Beating The Market" Should Never Be Your Goal In Retirement

When it comes to retirement, chasing performance or beating an index does not guarantee a successful retirement outcome. Only planning can do that. Plans, not returns, lead to successful retirement outcomes.

What is and what isn't a retirement goal

Examples of good retirement goals:

  • Saving enough money to retire comfortably
  • Creating an income and investment strategy to ensure the money you saved lasts the duration of a 30 year retirement
  • Doing what you want, when you want and how you want

Example of bad retirement goals:

  • Beating the market every year

First of all, let's get something straight. Beating the market on a yearly or consistent basis is a fallacy. It can't be done. We have the most powerful computers the world has ever seen today and not one of them can beat the market. Many, including me, consider Warren Buffet the most successful investor of all time. He doesn't beat the market yearly. However, he does consistently beat the market over long periods of time because he buy stocks of quality companies and he holds them forever. And I don't claim to be smarter than Warren Buffet so I do exactly what he does.

Many retirees or soon to be retirees find this out the hard way. For example, let's say you retired at 65 and let's say your retirement investment portfolio return is greater than your neighbors retirement investment portfolio by 2% this year. Your neighbor runs out of money at age 78 while you don't run out of money until age 83. Did you really win? The answer is a resounding no because you both ran out of money! 

Yearly portfolio returns are literally meaningless in retirement and conversations about them put me into a deep REM type sleep. The only thing that matters in retirement is that you don't run out of money also known as purchasing power. That's it!

It turns out that "beating the market" or an imaginary benchmark in retirement doesn't really matter if you don't have two nickels to rub together and you're looking for a job when you could be hanging out with your grandkids.

Portfolio returns don't lead to successful outcomes. Plans do!

Returns earned by portfolios do not mean a successful retirement outcome. They can be totally meaningless. I think I heard you gasp...a financial advisor just told you your portfolio returns can be totally meaningless! No doubt returns are great but they don't always lead to successful retirement outcomes.

What would've actually changed the negative outcomes above? What would've kept our examples from running out of money in retirement? Better returns? The latest greatest stock? Watching the financial "news" 24/7?

None of the above would've changed a thing. The only thing that could've changed their outcomes would've been the presence of a written, date specific, dollar specific retirement distribution plan funded with appropriate investments in the appropriate asset classes and a planner to keep them on the plan year after year.

A retirement plan requires a planner - not a performance chaser or the empty promises of a market beater. Plans, not returns, lead to successful retirement outcomes.

At 80/20 Financial we are retirement planners. We define your goals, we make a long term plan for achieving those goals and then, and only then, do we build a portfolio containing asset classes which have historically provided the long term returns that our plan requires.

We believe that true retirement planning is aligning your investments to achieve your retirement goals. We aren't interested in creating wealth quickly. We are interested in creating wealth for certain.

You Need A Plan

At 80/20 Financial Services, we are retirement planners. We believe a goal of retiring - without a plan to increase your income during retirement- is simply a plan to run out of money. Retirement planning is a strategy to maintain and increase that dollar amount over time. If you're age 50 or over and still in the accumulation phase (pre-retirement) we can help you figure out where you need to go and how to get there. If you are retired or nearing retirement, we can create a plan which will outpace inflation and increase your income over time. The consultation is free and without obligation. Contact us to set up a consultation.

Our mission is to increase your time, money and peace of mind by helping you create retirement income and investment strategies that align with your retirement goals and then guide you through the completion of those strategies year after year.

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Thanks for reading!

Brian Coleman/Retirement Income & Investment Planner

80/20 Financial Services is an Independent Registered Investment Advisory Firm. We help clients age 50 and over plan their retirement income and investment strategies. Contact us today for help with your retirement needs.

Photo by Markus Winkler on Unsplash