Tales of a Technician: Goal, Plan, Portfolio
February 16, 2021
“All successful investing involves constantly acting toward the realization of the goals and all unsuccessful investing is based on reacting to whatever the markets happen to be doing now”
Nick Murray
The proper progression of a lifetime investor is goal>plan>portfolio.
Start by establishing your goals. What are you investing for? How much will it cost? How much time do you have between now and then? How much capital do you have available to invest toward the realization of that goal today? And, finally, how much can you commit to adding to it each month moving forward?
Equipped with the answers to those questions, you can then map out a plan for achieving your goal, and ultimately the proper portfolio.
Let’s walk through an example of a hypothetical 35-year-old couple. Suppose, among other things, they have a goal of saving $1.7 million for retirement in ROTH IRAs. Their planned retirement age is 65 giving them 30 years of time, and they’ve already built their account values to $110,000. They’ve committed to investing $1,000 per month ($12,000 per year) to continually max out their annual contributions. For simplicity purposes, we’re assuming the annual limit doesn’t increase. In reality, it will incrementally rise with inflation adjustments.
To recap:
Goal: Amass $1.7 million over the next three decades
Current capital: $110,000
Annual contributions: $6k per IRA or $12k total
Do you know what kind of annual return they will need to reach their goal?
A measly 6.1%.
Sounds well within the realm of reason if you think future returns deliver anything close to historical averages. No expert market timing needed, nor superior stock selection. A simple diversified stock portfolio should do the trick.
Now to the Nick Murray quote above. How can we consistently act toward the realization of this goal?
First, follow through with the plan to invest $1,000 per month, no matter what. Don’t let headlines, crises, valuations, bubble talk, fear, or doom speak deter you.
Second, never react to short-term market movement. If history is any indication no less than six bear markets (two per decade) will greet us between now and retirement. Some thirty corrections (one per year) and ninety pullbacks (three per year) will also hamper us along the way. Drops are as common as dirt, and we’d be fools to let these radar blips derail the plan.
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Thank you Tyler very wise words, great reminder of focusing on the goal