The 7 Deadly Retirement Sins, Part 4
Perhaps the number one reason most retirees botch their portfolio management is their attempt to try to time the market. Market timing is the equivalent of fortune telling. Studies have shown time and again that it is impossible to do on a consistent basis. In fact, these same studies also show that not only doesn’t it add any value to your portfolio’s performance, but it will actually hurt your portfolio over time.
Most clients come to me with the misconception, that I, being a Certified Financial Planner™ and in this industry for many years, have some sort of “inside” information. They seem to be under the assumption that I will be able to tell them when to get out at the top and when to buy at the bottom. The truth is financial planners and money managers are not prognosticators. Despite the fact that you see us on CNBC making market calls daily, the truth is, the average money manager underperforms the market 80% of the time with little or no consistency between the ones that do on a year over year basis. The greatest money managers of our generation, Warren Buffet, Peter Lynch, George Soros will tell you, they have very little success picking the direction of the market. Their talent lies in determining undervalued assets, picking them up in large quantities at cheap prices, and then waiting until the world recognizes their true value. Sometimes, this takes years, even decades. However, they are not concerned about short-term perceptions and fluctuations, only long-term results. This should be your investment philosophy as well.
The average retiree who begins living off their assets at 65 has an average of 20 or more years of life ahead of them. This means that there is a long-term time horizon, even for someone in their 60’s or 70’s. Sure, a large portion of their money must be set aside in safe, secure assets so they can pay for expenses over the next five years. However, what about the expenses they will incur when they are 80 or 85 years old.
Solution: It is imperative that they have a portion of their money in the market with a long-term perspective in order to cover those expenses. This should prevent the average retiree from trying to time every market move with their long-term money. When it comes to trying to time the market, less is more.
“Lethargy, bordering on sloth, should remain the cornerstone of a great investment style” – Warren Buffet