I sit at tables with a lot of people who are thinking about retirement. Most expect me to be able to pick the stocks that will be the key to their financial success. We are lucky to have developed a great process that gives our clients assurance that they are on the right track. There are some consistent lessons that we’ve learned through years of guiding clients that we relay every day. They are not brilliant predictions or proprietary algorithmic analyses, but tried and true advice that never wavers.
Savings Rate
Two people can earn the same market return over thirty years and retire in completely different circumstances simply because of a difference in savings discipline. No investment pick can rescue an under-funded plan. Waiting until later to sufficiently save for retirement means you miss out on the miracle of compounding — which does more heavy lifting than any ticker symbol ever will.
Spending Assessment
Spending discipline is the twin of saving, and it matters just as much after you retire as before. This exercise requires that you get a handle on your current spending, estimate the rate of inflation ahead, and — deliberately — overestimate your lifespan so you don’t run out of money. A sustainable withdrawal plan is what keeps a portfolio intact through a thirty-year retirement.
Market Risk
When we build a financial plan, we often find that the spending required during a client’s retirement exceeds their current savings. Almost every client will need to invest some portion of their portfolio in stocks. Our goal here is not to identify the stocks that will be the top performers but to select a diversified portfolio that eliminates any unnecessary risk. With that said, there is an interesting phenomenon that shows up when our clients have saved sufficiently. In most cases, an aggressive, all stock portfolio rarely results in the highest success rate for a plan. Tempering the stock market risk in a client’s portfolio will reduce volatility and help an uneasy investor stay in the market when the inevitable challenging market arrives.
What’s Not on the List
You do not need to know who will be the winner of the AI era to successfully retire. Yes, picking the next best performing stock of the decade could be meaningful to your wealth, but the odds are against you, so please don’t make the mistake of tying your retirement dreams to a potential lottery stock. We’ve been here before. The railroads, electricity, the automobile, and the Internet all transformed the world — and in every case, picking the individual winners in advance was nearly impossible, while the broadly diversified investor captured the growth anyway. Innovation will continue. Headlines will change. A globally diversified portfolio already owns tomorrow’s AI winners, whoever they turn out to be — no forecast required.
So, if you find yourself wondering which stock will secure your retirement, I’d gently suggest that you’re asking the wrong question. Save well. Spend wisely. Choose an appropriate amount of risk for your plan. Do those three things with discipline, and the future takes care of itself.
Author: Shaw Pritchett is President of Jackson Thornton Wealth Management, an independent, fee-only advisory firm serving clients across Alabama.
