Evidence Based Investing 4D

The Ideal Investment Mix During Retirement

As we’ve discussed many times, investing during Phase II of your financial life, when your paycheck from work is no longer coming in, the stakes go way up, and your entire investing mindset and process has to drastically change.

This is where the next set of strategies in your evidence-based investment system are so critical.

After you’ve set aside what not to invest during your retirement, i.e. five years’ worth of your anticipated withdrawals to support your cash flow needs in money markets and short-term fixed income instruments, and away from the volatility of your broadly diversified stock index funds, implement The 4 Ds:

  1. Determine: What percentage of your Retirement Bucket™ of Investments will you dedicate to the higher expected returns a broadly diversified mix of stock index funds have offered vs. bonds and money markets? Historically, the higher the percentage, the higher the probability of capturing higher expected long-term returns and protecting your purchasing power.
  2. Diversify: It can be tempting to invest in a single company (Amazon) or sector (high tech), but your risk increases dramatically. Instead of searching for a needle in a haystack, buy the haystack.  Your chances of outsmarting millions of other buyers and sellers for very long is close to zero.
  3. Delegate: Avoid expensive actively managed mutual funds and hedge funds. Each has a horrible track record of beating their respective asset class index.

Only 17% of actively managed funds have outperformed their index over the last 20 years, and it’s a different 17% each year.

Instead, use low-cost index funds which are a much more disciplined and cost-effective way to own a broadly diversified mix.

  1. De-Escalate: At pre-determined dates during the year, maintain the discipline and strategically rebalance your holdings back to your target exposure so your risk levels remain in check.

The most common question we all hear asked is what’s THE ideal investment mix during my retirement years?

  1. Is it 100 minus your age?
  2. Is it 60%/40%

The best answer to that question is the mix you can hold through all market conditions so you can capture the higher expected long-term returns markets offer. 

It can be that simple.

All the statistics and sales pitches in the world are of no value to you unless you have the confidence, strategy and system in place to hold your carefully selected Retirement Bucket of Investments through all market conditions, including normal and temporary market downturns like the most recent Covid-19 crash or the 2008-2009 financial crisis.

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