Investment and management of pension income is a bit like trying to get in shape.
It would be great to drive with the Marathon phenomenon Eliud Kipchoge – or just finished 26.2 miles – but focusing on performance is often a fool's game. It is far better to focus on outcomes, especially those that make sense to you.
When certified financial planner Patti Brennan meets new customers, she asks if they are "performance driven" or "performance driven." People who are the result driven target a particular return tailored to their investment needs and risk tolerance. Those who are focused on performance usually seek to match or beat an often arbitrary benchmark, usually the Standard & Poors 500 index.
It is easy to understand why people are caught up in performance: Investors are flooded with news about S & P 500 and other figures of returns. When the market rises by 20% a year, a 1
"That's one of the things I tell people [who are performance oriented] about being careful about what you want," says Brennan, president of Key Financial in West Chester, Pa. If the goal is to keep up with the market, she says, it also means being able to tear out the inevitable fall.
For several reasons, it may be to drive performance drivers to set up barriers to errors even before they get started. For one thing, while a person accumulates his retirement allowance, their actual return is unlikely to look like the market during that period. "Even if you had 100% of your money invested in the S & P 500, your performance will not be what S & P 500 did because not all money was in that account for the entire 12 months," says Brennan.
In other words, If you start the year with $ 1000 and systematically add $ 500 a month to your account, even if you earn a 20% return calculated every day, you will have around $ 7,800 by the end of the year, which is not exactly the same as earning. A 20% return of $ 7,000, which would leave an investor with $ 8,400.
At the same time, markets rarely go up: The dual bike upside usually comes with similar drawbacks. requires more than 10% return.
Consider the difference between an investment of $ 10,000 and an average annual return of 10% over three years and one that deserves 30%, reduces 10% and bounces back 10%. the results should be the same, but it will still be The 10% return is worth $ 13,310, Brennan says, while the more volatile option ends with $ 12,870.
"After a 10% decline, she says, you have to do more than 10% next year just to break yourself," she says.
And this assumes that an investor is actually sticking with the program. Most do not have them in them, since studies from Dalbar, a consulting firm, have shown year after year.
In 2018, Dalbar's research shows that the average investor in a mutual fund lost twice as much as
The average person took money off the table – a seemingly knowledgeable movement that shares the flirt with the bear market – still delaying the index in the second half due to poor timing.
Dollar Cost Ravaging
Being the outcome driven is especially important in terms of pensions. Savers have been told to embrace the beauty of dollar cost, the strategy of periodically investing, whatever happens in the market. When markets are high, the same dollar amount will not buy as many stocks, but investors will benefit when prices fall because they can buy more. It's all on average.
It doesn't work like that when people turn on pension funds, as Blackrock noted, and call the phenomenon "dollar cost flow." Because retirees are deducting their savings – do not add to them – market waste takes much greater tariffs.
Sticking With It
It turns out that more than half of Brennan's new customers say they are results-oriented, and that is a great starting point. Nevertheless, it also has challenges, especially when the stock market is fierce. "When they get their reports and they see that they are underperforming the market, the real things come out," she says, noting that some of the more challenging points in her career have been under the stock market.
"A good portfolio is like a garden," says Brennan. "When it's really diversified, something is always in bloom."