Just Tell Me What I Should Buy!

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About a month ago I met a very kind couple. The husband and wife were both months away from retirement and decided it was time to start looking into how they would manage their investments in retirement.

Their money was with…well…let’s call them Fairmerican Funds. The investments represented a very common asset allocation that I’ve seen from Fairmerican Funds.

“… the combination of higher fees and a lack of diversification typically led to low chances of navigating successfully through retirement.”

The couple attended a number of seminars to prepare for retirement. Mine was one. They set up meetings with a number of advisors, but, in the end, it boiled down to me and Fairmerican. They came to our second meeting. I reviewed their existing portfolio and analyzed how it would do in retirement. As is typical with Fairmerican Funds, the combination of higher fees and a lack of diversification typically led to low chances of navigating successfully through retirement. This led to the inevitable question arose, “What will we invest in?” In typical fashion I asked back (and I’m paraphrasing), “How many hot dogs from here to the moon?” Gripping stuff.

What type of returns did you want? Do you want to leave an inheritance? Are you spending or reinvesting RMDs? How much risk can you accept? They had no idea. I had no idea. We were all, effectively, fumbling in the dark.
Not so for Fairmerican! Fairmerican, apparently, knew how much they were spending, how much risk they wanted to take, and how much they were going to take in retirement. Fairmerican, in effect, knew everything (or believed they did) and had a magical potion of investments made from, what I suspect are, ground up rainbow unicorn horns (forgive my sarcasm).

“What will we invest in?” … I asked back … , “How many hot dogs from here to the moon?”

Except, according to our family, Fairmerican never asked them about any of the problems we had just discussed. Well … puh-shah … this was ground up unicorn horns Fairmerican was talking about! Certainly, anything was possible with all their proprietary funds.

I always find it curious that people will sit down with an architect for months to determine what a house will look like and cost before they build it. People will sit at a computer for endless hours to determine what their next vacation will look like. They’ll consider the costs, the time frames, the proper vehicles and tools to use, etc. People intuitively know that a business plan increase the chances of successfully starting a business. However, if an investment company blurts out, “50/50 stock/bond portfolio,” people will consider buying.

Wade Pfau (www.retirementresearcher.com), has done extensive research on generating income from retirement and has found that most investment professionals are completely unprepared to help people take income during retirement. If that is the case, is the common citizen prepared?

“… puh-shah … this was ground up unicorn horns Fairmerican was talking about!”

To coin a phrase, “There is more than one way to skin a cat.” Similarly, doesn’t it make sense that there isn’t a single, magical set of investments that will navigate you through retirement? More often than not, there are a number of ways to invest for retirement. After you’ve constructed a basic plan that accounts for inflation, RMDs, market risk, etc, you can assess the range of outcomes for different investment strategies and choose the one that best fits your family’s needs.


1 Pfau, Wade. Safe Saving Rates: A New Approach to Retirement Planning over the Life Cycle. May 2011.
https://www.onefpa.org/journal/pages/safe%20savings%20rates%20a%20new%20approach%20to%20retirement
%20planning%20over.aspx

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