Here’s a pretty simple chart showing hypothetical investment results for two hypothetical investors. Each of them saved $2,500 a year for 25 years, using investment strategies that delivered identical 7% rates of return each year. After 25 years, one investor ended up ahead of the other by more than $11,000. Can you guess why? Read more »
Commentators almost seem to have been competing to coin the catchiest—or most negative—label for the ten years from the end of 1999 to the end of 2009. It’s not surprising that some have called it the “Decade from Hell,” given the 9/11 attacks, wars in Iraq and Afghanistan, Hurricane Katrina, a deadly tsunami, the nastiness of domestic political discourse, soaring unemployment and federal budget deficits, etc.
Like everyone else, I’ve been reading (well, skimming) reams of year-end—and in some places, “decade-end”—economic summaries. There’s lots of talk about black swans, financial “Frankensteins,” lost decades, and fundamental changes in investor behavior.
Black swans are old news, and I’ve written on financial innovation and lost decades previously. And I’ve only got a tiny bit to say about investor behavior. I’ll get to that after sharing a few other observations I wish got more attention in all this year-in-reviewing.
If you rely on a financial advisory firm to manage your assets, how do you know if you’re getting what you pay for?
We think the answer to this question comes down to several specific points, one of which (an important one, but by no means the only one) is investment performance. If your advisor hasn’t at least outperformed broad market indexes by the amount of his or her advisory fees, ask yourself whether it might have been simpler to invest in broad index funds on your own.
I’ve mentioned in several previous posts that the anxiety about 401(k) balances has been largely overstated, in part because of the beneficial effects of ongoing contributions and diversified portfolios. This point has come across as Pollyanna-ish to some of you, a point that I can sympathize with, even though I largely disagree with it.
However, I am no Pollyanna about retirement risks, and want to spend a moment discussing what I view as the most important real risk embedded in your retirement savings account: the possible toxic combination of unemployment and market losses.
