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Let’s tell a story.
First, we agree on some basics. The best way to set a lifetime investment plan is to discuss our goals, create a plan, and then assemble a portfolio of investments. We agree we should do these things in that order, because it is the order of priority.
Let’s say you want to retire in 10 years at age 62 and provide an income of $200,000 per year. You have Social Security that will cover $75,000 of that, and you have investment assets of approximately $1,000,000.
We have agreed to tuck away $5,000 more per month, for each of the 120 months until your retirement. Based on these assumptions, you’ll need a 10% compound return to reach your goal in 10 years. Historically, a rate of return that high has only been achievable in equities. We have selected a diversified portfolio composed of equities whose historical long term return, net of our fee, meets your goals.
There can be no assurance that you will achieve that return over the next 10 years. If you do not, then adjustments will have to be made, such as investing more as you go along, or working beyond age 62, or reducing your income goals, among other options.
Equities subject your returns and your capital to wide variances. For example, the SP500 has declined approximately 13% per year on average. We agree that we will continue investing as planned through any and all of the declines we may encounter over these next 10 years, in the hope of buying these lower priced shares.
We’ll review this strategy no less than annually. Provided that your goals do not change, we do not expect to alter the plan or the portfolio. The goals first, then the plan, and finally the portfolio will be our guiding light.
Disclosures
What is the average intra year decline of the S&P 500? Accessed December, 2023.
