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Hint: "Every year, everything you need to buy will cost more." That's right, the biggest concern you have is inflation.
Fixed income, i.e. bonds will NOT keep up with inflation. You need growth. Growth compounding over time and assume it will be uneven growth - it always has been, always will be.
You must be, hopefully, intelligently, invested in equities, i.e. stocks. You should be heavily diversified in low cost, passively managed funds that span many asset classes, company size from micro cap to large cap, in developed and emerging markets across the globe.
What's heavy diversification? A minimum of 6,000 unique stocks, ideally around 13,000. Most stockbrokers nor even several typical mutual funds will not expose you to more than 1,000. Being in the market is where the returns come from; through diversification you mitigate the unnecessary sources of volatility.
Definition of intelligent beyond principles above: - Exercise discipline. Stay in the market, occasionally re-balance. As tempting as it may be - do not time the market. Don't bail out when it drops, don't over-invest when it soars higher.
- Protect your portfolio. In retirement keep a cash reserves equivalent to 4-5 years of expenses. If the market has a big drop, you stop accessing your portfolio until after the market bounces back.
- Fixed income is not a smart place to seek higher returns. Fixed income risk adds unnecessary unrewarded volatility.
- Use a portion of the portfolio's "total return" as your source of income in retirement. The strategy of buying specific sources of income to match your income needs usually means you have too much in fixed income and their total return is too low to beat inflation. It seems to make logical sense but is flawed.
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What to Do Next
We regularly analyze folk's current investment strategy with nothing expected in return. (We'll analyze other aspects of your strategy if you wish!) We look at: - Overall Performance (vs. benchmarks & our model portfolios)
- Portfolio Design
- Diversification
- Fees & Expenses
Since so many brokers use an active management strategy, the comparison to our model portfolios (passive) is usually eye-opening. An active strategy is fraught with difficult challenges like where to purchase a reliable crystal ball. (Maybe ask Harry Potter, never mind he's fictional.) Give us a call. You are your own fiduciary - and getting an objective review of how your precious assets are being invested is a wise move to protect yourself & your loved ones. We tell you how you're doing things right and wrong. 760-804-0910 |
