May 26

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You Are Not Going to Run Out of Money

You Are Not Going to Run Out of Money

I have amazing, awesome news!

As soon as you retire you get to start spending 5% of your retirement savings each and every year (assuming the money is appropriately invested).

Why?  Because if you don’t, you will die with more money than you have right now.

“But Dave, you don’t know that!  You can’t say that!  What if I run out of MONEY?!”

I have been trying to think of the absolutely simplest way to convey the reasons why I feel so strongly about this subject.  Here is my latest, best attempt:

If you invested 50% of your money is stocks1 and 50% of your money in bonds2 over the past 42 years what would have been the investment result?  The following information is not my opinion.  It is simply what happened.

Let’s look at 15 year periods since 1975 (i.e. 1975-1990, 1976-1991, 1977-1992…..2001-2016).

The worst average annual return was from 1998-2013.  The average return?  5%.  That’s the worst.  Five Percent.

The best average annual return was from 1984-1999.  The average return?  15% (incredibly the $100,000 investment in 1984 would have been worth $858,000 in 1999).

That’s it.  Let’s not make this more complicated than it is.  We have data stretching back over 200 years which tells a similar story.

No.  I can’t guarantee any of this.

True.  Past results do not guarantee future returns.

But it’s not like there are inconsistent patterns occurring here.  Over any 15 year period, the worst average annual return on a 50/50 bond/stock portfolio was a positive five percent.

At a certain point you have to draw a line in the sand.  You need to proclaim to your brain, “I am not going to worry about running out of money.  I am going to enjoy my life and spend the perfect balance between too much money and too little.  I am not going to think about this anymore!

I would encourage you to proclaim it out loud.  Right now.  Those worried thoughts you’re having are an illusion.  Heck, did you know there is about a 1 in 1003 chance you are going to die in a motor vehicle accident during your lifetime?  I don’t hear retirees saying, “I’m not going to use any motorized transportation ever again. I don’t like the odds.”

You. Are. Not. Going. To. Run. Out. Of. Money.

Be Blessed,

Dave

1- The S and P 500 Index

2- The Barclays Aggregate Bond Index

3- http://www.iii.org/fact-statistic/mortality-risk

Sincerely,

David Kennon

 

The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings.

The value of fixed-income securities may be affected by changing interest rates and changes in credit ratings of the securities.

 Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Indexes are unmanaged portfolios and individuals cannot invest directly in an index.  Actual results will vary.

This communication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any securities or product, and does not constitute legal or tax advice. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel.

 

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