Still Playing the Game?

Why Continue To Play the Game if You Have Already Won?
 
The title is a quote attributed to Dr. Bill Bernstein, whose writing has been a guiding light for me and other Coffeehouse Investors over the past two decades.

Why continue to pursue higher returns in the stock market, when, through your diligent saving and astute financial planning, you can embrace your retirement years with a healthy allocation to bonds and other fixed income investments?  

Forty years ago, self-directed 401(k) retirement plans were established. Over that same forty-year period interest rates plummeted and the US stock market soared. (Whether the former helped propel the latter is a debate for a different day, but I’m thinking it did.)

Last week, a Wall Street Journal article titled, “Stock-Market Rally Makes More 401(k) Savers Millionaires,” referenced a study by Fidelity Investments which showed the number of investors with at least $1 million in their 401(k) accounts has grown about 25% so far this year.

The columnist goes on to write, “Not surprisingly, the rise and fall of retirement-account millionaires closely track the stock market’s move.”

For those of you who have been prudent savers and savvy investors over the past 40 years, have you been lulled to sleep by US large cap stocks (S&P 500 Index) that generated a healthy 11.5 percent annualized return over that period, including a 12.6 percent annualized return over the past decade?

Have you forgotten about the 10-year period ending 1974 when the same index returned 1.2% annualized, or the 10-year period ending 2008, when the same index produced a NEGATIVE -1.4% annualized return?

If you have already won the game, is it time to sharpen your pencil, and adjust your allocation to include the possibility of zero returns in your common stock holdings for the next ten years?

That is what astute financial planning is all about.

Peace of Mind

Want to create a financial plan that allows you clarity and peace of mind in your retirement years? If you have $1 million or more of investible assets and are in or close to retirement, let's connect and strategize a plan together.