Have you ever watched an NFL football game? While watching the game did you compare either team to your favorite baseball team? Probably not because they aren’t playing the same game.
As a retirement income planner, I often get questions from clients and potential clients on outperforming the market or investment performance in general. Maybe they heard on the “financial news” that the market was up X percentage that day, month or even that year and they wonder why their retirement portfolio isn't up the same percentage.
Well simply stated, I am not a day trader or short-term trader. I’m a long-term, goal focused, plan-driven investor. I’m not playing the same game as the so-called “experts” on TV and radio, etc. I’m not playing a day to day game. I’m not even playing a year to year game.
Modern day retirement can last 30 years or even longer in some cases. I’m playing a game of decades and not days because of what I refer to as the three S’s of retirement planning.
Most of you are familiar with the S&P 500. If not, that’s the 500 largest and best companies in the United States and the stock market index that tracks their performance is the S&P 500. Each one of those companies has approximately 30 Financial Analysts that follow them day and night. Many of these analysts know the company as good or as well as the people running the company.
And guess what? These experts are often wrong about the financial earnings of these companies every quarter of the year. Many times these companies will outperform or underperform the analysts' predictions. So why is it that you might think you can do better in predicting short-term performance of these same companies than the analysts that follow them 365 days per year? I don’t know why people think this, I just know they do. I see it all the time.
In my retirement planning approach, I know I can’t eliminate short-term surprises, but I can plan for them because I know they are going to happen. As a financial advisor, I have no idea what the performance of the S&P 500 will be today. That doesn't bother me much because no one else does either.
So at my firm, if you have immediate needs for income from your retirement portfolio, we plan for these surprises by always keeping an emergency fund of at least 2-5 years of cash on hand that will cover your living expenses. By doing that we eliminate the short-term surprises of the markets. Like I said, I don’t know what the market will do today, tomorrow or even next year, but when you start projecting 5-10 years out you can predict with some certainty what will happen because the best companies in the world are ultimately rational with their money. When they see something they are doing failing, they right the ship.
Short-term investors, such as day traders, aren't doing that. They are trying to maximize returns in the short-term. We are trying to maximize returns in the long-term. We aren’t playing the same game. That leads us to the next “S” of retirement.
Will a football team have the same strategy as a baseball team? No they won’t because they aren’t playing the same game.
Will a 40 year old saving for retirement have the same strategy as a retiree that’s worried about running out of money? No they won’t because they aren’t playing the same game.
At 80/20 Financial Services, we specialize in working with electric cooperative retirees. And like most retirees, their main concern is almost always running out of money in retirement.
But the difference is when they say money they are typically referring to a dollar amount. While I am worried about that for you also, I’m looking at things a little differently than you. Money is nothing more than purchasing power. If you don’t believe me, look at the cost of a stamp 30 years ago and look at the cost of a stamp today. The cost of a stamp in 1993 was 29 cents. The cost of a stamp today is 66 cents. That’s more than double. And that same thing happens to every single expense in your life during retirement. That thing is called inflation.
Every year, without you realizing it, inflation is grinding away silently at your money/purchasing power. And it’s doing it at a rate of about 3 percent every year. This means 1 dollar 30 years ago will buy about 50 cents of something today. And your 1 dollar today will be worth about 50 cents in purchasing power 30 years from now.
So if your strategy is to “protect” your money by keeping it in a bank or under your pillow, you’re going to wake up in 30 years and you might still have the $1 million dollars you retired with but that $1 million is going to have the purchasing power of $500,000.
By not having an investment plan for your money, you unintentionally made a plan to run out of money.
At 80/20 Financial Services our retirement investing strategy is simple. Our strategy is to make sure you maintain your purchasing power throughout retirement.
Our strategy won’t be the same as someone saving for their kid’s college. We aren’t playing the same game.
Did you know that over any 20 year period, the earnings of the best companies in the world have consistently outpaced inflation? Did you know they have not only outpaced inflation but they have destroyed inflation by a margin of about 3-1. Meaning inflation has averaged about 3 percent and the earnings of the best companies in the world have averaged about 10 percent. Which is a net gain of 7 percent.
Yet many people will look me straight in the eye and call stocks risky while calling Bank CDs and Annuities that pay a “guaranteed” 3 percent safe. Last time I checked 3-3 equals 0. Meaning if you have your money growing 3 percent and inflation is averaging 3 percent your growth is zero. You’re literally treading water. Wouldn’t it be more fun to swim?
You depend on the best companies in the world for almost everything in your life from your car, to your phone, to your clothes, to your food, etc. Why would you not trust those same companies to be good stewards of your money in the long-term?
At 80/20 Financial Services, we are worried about you losing your money too. However we define money as purchasing power which is the only sane definition of money. That’s all money is. It’s purchasing power. Our retirement planning approach is designed to be a solution to this.
Our solution to beating the number one killer of all retirement plans, which is inflation, is simple. We invest long-term with the best companies in the world and we let them do what they have always historically done, which is to outpace inflation by a margin of 3-1.
Our solution isn’t to maximize return on a daily or even yearly basis. Our solution is to make sure you have the same purchasing power in 20-30 years that you have today.
We won’t have the same solution as someone trying to maximize daily and yearly returns, We aren’t playing the same game.
You wouldn’t compare football to baseball. They aren't the same game. Don’t compare a 20-30 year retirement plan with the short-term performance of your brother n law’s can’t miss oil stock. You aren’t playing the same game.
You need a plan
Retiring - without a plan - is simply a plan to run out of money. Your NRECA R&S Pension is not a plan. Your NRECA 401k is not a plan. Those are only pieces in the retirement planning puzzle.
At 80/20 Financial Services we specialize in helping cooperative employees plan their retirement. We can show you how to turn your 401k and your R&S lump sum into a stream of income just like when you were working while also helping you achieve your desired financial outcomes in retirement.
The consultation is free and without obligation. Contact us to set up a consultation.
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80/20 Financial Services is an Independent Registered Investment Advisory Firm. We help Electric Cooperative Employees create their retirement income and investment plans. We turn your NRECA 401k and R&S Pension into a plan that will provide you lifetime income and can change your family's legacy.
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