You have made it, or at least you are nearly there. A combination of hard work, long-term investing, and perhaps a little good fortune have you on the precipice of “financial retirement.” That’s when you are working because you want to, not because you need to.However, there is a difference between getting close and making it. Retirement is not something you want to have ultimately end up with “nice try” attached to it.So, in the spirit of providing you with a bottom-line reference guide for 2020 and beyond, here are the keys to keeping what you have accumulated, and shutting out the distractions and temptations.
The past decade has been historically strong for global stock markets. The U.S. has done especially well, and the major indexes like the S&P 500 have been superior performers. That’s great, but it does not buy you a penny of future performance. In fact, market cycles would indicate that the chances of the S&P 500 approaching its past 10-year annualized return of over 13% are slim.Diversification has been less effective the past few years as it was in the past. And, risk-management techniques have essentially dragged returns. What else would you expect when the market goes up at a pace rarely seen in modern history?However, past is not prologue. Think of the past 10 years, capped off with the S&P 500’s giant return in 2019, as something of an unexpected gift. And take advantage of it by being proactive to manage your larger nest egg, instead of simply letting it ride.
2019 was great to anyone that had a lot of money invested in the stock market. 2018 wasn’t. The S&P 500 was down over 10% until a last-week rally saved it. The market was down 37% in 2008, then up 26% in 2009. I could bore you with more history, but here is the point: calendar years are a nice, neat way for financial product marketers to pitch their wares.However, your pursuit and maintenance of your retirement nest egg is not an annual contest! Investing and financial planning are ever-evolving projects. They are more like movies and less like photos. Don’t let the calendar stuff take you off your mark.
Speaking of big mistakes that can be avoided, keep this in mind: market commentary, stock picks, etc. are made mostly by people who do not know you. Therefore, that is not “advice.” It is prognostication. Unless you can confirm that their objectives are identical to yours, don’t just take what they say at face value. No one knows you…like you!
Here is something you probably thought you would never hear from a guy who manages other people’s money for a living: how the stock market performs is not important. That’s right. The market is not the end, but rather a means to an end. It is a tool for us to use to get you what you want.More than anything today, the stock market is a very useful, flexible, hedge-able, income-producing tool. We can use it to engineer the type of returns we aim to achieve, with the level of volatility we can handle. And, if you use it correctly versus your objectives, that’s what matters most.Whether the S&P 500 is up 30% or down 30% in a year is NOT important if you are 75% or more along the way to what you need to live off of the rest of your life. And if you are retired, that is even more the case. What IS important is that you use the markets (stock, bond, commodity, etc.) to give you the highest possible chance of staying on the path to financial success.My biggest fear for the Baby Boomer generation is that they will make a very avoidable mistake. They will assume the assets they have amassed, and the rate at which they have made it, will extrapolate itself into the future. It might. But it might not. And if it doesn’t, emotional decisions could cause them to grab retirement defeat out of the jaws of victory.
Don’t just leave it all to someone else. If you want to leave the more esoteric parts (investment selection, financial planning, tax and estate strategy, etc.) to others who do it for a living, that makes total sense. However, that is not the same thing as saying you should not be what I call a “serial learner.” After all, that is probably how you accumulated that nice nest egg to begin with.Sure, the subject may now be stocks, ETFs and hedging your portfolio, rather than whatever it is you knew that enabled you to retire with assets. But that does not mean you shouldn’t seek to at least have a working knowledge of what is being done.Be curious, and don’t simply accept what is told to you by well-dressed, fancy-talking “pros.” There are too many non-fiduciary types floating around to be flippant about your wealth, no matter how well you did in 2019. After all, the best professional relationships are when the client and advisor are teammates, not opponents. My best wishes for your having “2020 Vision” in the new year!