418: Calculating Investment Returns: How You Average Matters
Feb 2, 2024
auto_awesome
Learn the importance of averaging investment returns and how it can impact your financial well-being. Understand the difference between investment performance and what the media portrays. Discover the significance of reducing volatility and understanding market swings. Calculate average investment returns and how it relates to retirement. Explore different strategies and opinions on investment volatility in retirement.
Tuning out the noise and focusing on long-term goals and a well-built financial plan can reduce anxiety and distractions for investors.
During retirement, a more stable and balanced investment approach can significantly impact retirement outcomes by reducing volatility.
Deep dives
Understanding Investment Performance and Noise
Investment performance is often communicated through periodic returns, but the way it is experienced can be different due to various sources of noise. The constant influx of news and financial updates can create unnecessary anxiety and distractions for investors. However, feedback from satisfied clients often highlights the importance of tuning out the noise and focusing on long-term goals and a well-built financial plan. It is crucial to understand that average returns and their impact on investment portfolios change significantly during retirement, requiring a more balanced and stable approach to reduce volatility.
The Impact of Volatility on Retirement Portfolios
Volatility in investment returns becomes particularly relevant during retirement. The article provides a powerful example of different sequences of returns that average 8% per year but lead to vastly different end results. A portfolio that experiences significant swings, even with an overall average return of 8%, can have substantially lower ending wealth compared to a more stable and balanced approach. This is especially important to consider during the retirement red zone, the ten-year period leading up to and following retirement when near-term needs must be met. Proper planning and a focus on reducing volatility can significantly impact retirement outcomes.
Choosing the Right Investment Strategy for Retirement
Retirees have different preferences when it comes to investment strategies during retirement. Some may prefer the stability and predictability of a fixed index annuity, while others may value the swings and potential higher returns of a more equity-focused portfolio. Regardless of the chosen strategy, it is crucial for individuals to understand their average return requirements and the associated risks and benefits of each approach. Tools and resources can assist in creating a well-rounded retirement plan that aligns with individual preferences and goals. Ultimately, there is no one-size-fits-all approach, and it is essential to evaluate options based on personal circumstances.
Today's article comes from Fortunes & Frictions titled, How You Average Matters. Listen in as Founder and CEO of Howard Bailey Financial, Casey Weade, breaks down the article and provides thoughtful insights and advice on how it applies to your unique financial situation.
📧 WEEKEND READING FOR RETIREES: Receive CFP® insight on 4 hand-picked financial articles delivered straight to your Inbox each Friday: https://bit.ly/3OEdGgu
📅 SCHEDULE YOUR PERSONAL FINANCIAL REVIEW: Book a 15-minute call with Howard Bailey Financial to see how the topics discussed here apply to your individual situation: https://bit.ly/3z5mXIw
ABOUT HOWARD BAILEY FINANCIAL: Our mission is to help others gain clarity in purpose and elevate meaning in their lives through personal and practical financial strategies. Our Retire With Purpose™ Framework starts with establishing your unique financial philosophy — the true meaning and purpose for your money in retirement. Through continued education, one-on-one meetings, and a comprehensive team planning approach, we have helped retirees across the country secure their financial futures. And while we can't work with everyone, our goal is to provide value to everyone we meet. Our team of advisors and support specialists strive to deliver the very best experience in pre-retirement and retirement planning. Learn more about our process here: https://howardbailey.com/our-process
Get the Snipd podcast app
Unlock the knowledge in podcasts with the podcast player of the future.
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode
Save any moment
Hear something you like? Tap your headphones to save it with AI-generated key takeaways
Save any moment
Hear something you like? Tap your headphones to save it with AI-generated key takeaways
Share & Export
Send highlights to Twitter, WhatsApp or export them to Notion, Readwise & more
Share & Export
Send highlights to Twitter, WhatsApp or export them to Notion, Readwise & more
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode