Make it across the finish line

Published: 2011-04-19 23:17:54
Author: Lee Hull | ChiroEco | April 2011

Consider the case of a doctor who has been in practice for a while and is looking to retire in roughly 10 to 15 years. He is concerned as to whether he will have the assets accumulated to do so. He feels that the burden of meeting his retirement goals falls on his shoulders.

He is not alone in his concern about managing his own retirement plan. In today’s world, most chiropractors are pension plan managers in some way. This is especially true for doctors in small practices and those who are self employed.

Whether you manage an Individual Retirement Account (IRA), profit sharing, defined benefit, or other retirement plan yourself (or hire someone to do it), you are in charge. In fact, the success or failure of your retirement plan is completely dependent on your ability to evaluate investments, funds, and financial advisors.

This presents an almost insurmountable problem for investors and business owners. The amount of effort it takes to review and absorb the abundance of information out there, which includes financial ratios, portfolio theories, and hypothetical performance, is a daunting task to say the least.

Questionable data

The problem is complicated by the fact that the majority of the data most people use to choose investments has no proven predictive value. For example, the period from 1990 to 2000 was not predictive of returns from 2000 to 2010; in fact, they were the exact opposites. The same is true for the 1970s and 1980s.

So, if you — or any other investors — want to take charge of your retirement plan investments and reduce the risk of a long period of poor returns, what can you do? This is the question posed by the case of the doctor mentioned earlier. He wants to make sure the next 10 years will be better than the past 10 years. What should he focus on when evaluating investments or advisors?

The largest risk

The largest risk we face is that the stock market will suffer a prolonged period of below-average returns during the remaining time we have left to grow our retirement plan. For example: If you are 40 years old and plan to retire at age 65, then you have 25 years to grow your retirement assets. If the stock market returns are lower than the long-term average over the next 10, 15, or 20 years, then you will fall short of your retirement goal.

The long-term average for the stock market is 7.6 percent net of inflation. Many investors assume they will earn this rate of return if they stay invested for a long period of time. However, if you look historically at returns during the top 10 percent and bottom 10 percent of 20-year time periods, you get a different story.

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