Retirement Planning Beyond Average Market Returns

Greetings!

The general theme of the 1st two months of meetings has been reviewing goals, planning for upcoming events, and updating retirement projections.

Many have asked: "How bad does my retirement plan look now?"

If you paid attention to the news this last year that is a reasonable question to ask.

What was surprising to most was the fact their retirement plan was virtually unchanged.

This is the beauty of planning. We are not just investors, we are investors who are driven by a plan.

When we run a projection on a plan it would be foolish to assume the market is going to average 8% in a straight line over the next 30 years. Even though that % is historically accurate.

Our models project and stress test the fact that markets never go up in a straight line. We know that on average every 5 years the markets will take a tumble upwards of 20%. And we know that EVERY year the average intra-year decline hovers around 14%. What has actually happened throughout history is modeled into our projections.

What else do we know despite all of that? Markest still end up positive on the year about 3 out of every 4 years.

What else do we know? No one can predict which year out of those 4 years is going to be the one that is negative.

I do not know how anyone can look at odds of winning 75% of the time and still choose to keep their LONG term funds in cash.

Lastly, a very important point to consider when funds are taken out of the market is Dividends.

Over the last century, the market has delivered an average annual return of 10.3% with dividends reinvested.

The return without dividends reinvested? About 6.3%.

Dividends made up an additional 4% return or about 40% of the overall return of the market.

I think dividends are such an overlooked factor when one is considering moving funds out of the market due to a temporary decline.

The last thing to consider is the cost of having your money in cash. What needs to be factored in is on average cash is losing about 3% to inflation each year. While cash may seem like a safe place during market declines, it is losing endeavor every time. One might argue you can get 5% right now in a CD, well with inflation at 8% you still came out behind 3%.

What I want you to understand is that dividends alone, not even factoring in growth of these amazing companies we are invested in, have added 4% to your wealth... outpacing an average inflation rate of 3%.

That is a beautiful thing.