Good Morning Relaxing Retirement Member,

If you pick up a copy of the January issue of Money magazine, or Kiplinger’s, or even Fortune, you’ll see all the winners in the mutual fund game in 2011.

Every January, each of these magazines ranks the highest returning funds in various asset categories over the prior year.

Champagne pours at the companies at the top of the list because they know what’s next.

What’s next is a drastic increase in the amount of money that will now pour into their respective fund.


Because thousands of people will see their company’s fund featured at the top of the one year performance list in Money magazine.

They’ll take a look at the 2011 investment returns for that fund, compare that return to their own personal investments, and begin to fantasize about what it would have been like if they had ALL their money in that fund last year.

The overwhelming majority of them will then conclude that they need to have their money in that fund too so they don’t “miss the boat” in 2012.

Sound at all familiar?

This is one of the main reasons why the overwhelming majority of investors continue to have horrible investment experiences and remain financially DEPENDENT during their retirement years.

Dalbar Study

Dalbar, a Boston research firm, conducts an annual study of average returns.  Their most recent study spans the 20 year period from 1991 through 2010.

Here’s what their most current study reveals:

  • The average annual return of the S&P 500 Stock Market Index from 1991 – 2010 was 9.14% (including dividends reinvested)
  • However, the average annual return of the “average” equity mutual fund investor (not investment, but an investor, i.e. a person) over the same 20 year period was 3.83%

Take a moment to stop and re-read those two numbers for a moment and let them sink in.

What these numbers tell us is that, while the S&P 500 Market Index delivered a strong average annual return over those 20 years of 9.14%, the average stock mutual fund investor (a person, not an investment) only achieved 3.83%!

That means that the average equity investor’s return was 58.1% less than the broad market index each and every year!

Assuming for a moment that you had $500,000 back in 1991, it’s the difference between you ending up with $2,875,074 vs. $1,060,296!  A difference of $1,814,778!

How can that be?

Well, I’ve just given you one big example: rushing to last year’s winner believing that whatever just “did” well will continue to “do” well in the future.


If you’ve been reading all of my recent Strategies of the Week and you’ve been digesting The Relaxing Retirement Formula™, you know just how dangerous this behavior is at this critical stage in your life.

I’m going to assume for a moment that you’ve been reading right along and you’re in agreement with me on this.  And, that you’ve followed the formula to arrive at the investment rate of return that you now “need” to earn in your retirement years (as opposed to the rate of return you “want” to earn).

Now that you’re here, the next question is where do you position your investments to produce that long term rate of return that you need while experiencing less volatility and paying less taxes to the government?

To help you determine the correct answer for yourself, there are four principles and guidelines I’d recommend for you.

Today, I’d like to begin with Principle and Guideline #1:

How Much and When?

Investing properly in your retirement years begins with first knowing what NOT to invest.

This may sound rather odd, but think about it.

Because you will be withdrawing money from your Retirement Bucket™ each month or year, you can’t afford to have those funds subject to any market volatility.

Why take the risk when you don’t have the time to recover?

Investing is about exposing your money to capital markets with the goal of ending up with more than you exposed so you you maintain your purchasing power.

However, in order to do that, it’s quite possible that capital markets may not respond the way you want in the short run and prices may temporarily fall.

If they fall right before you need to withdraw funds to live on, you’ve just suffered investing sin: you’ve sold low!

Or, stated more accurately: you’ve put yourself in a position where you were forced to “sell low”.

So, as I’ve stated emphatically over the last few weeks, the first principle I recommend is getting crystal clear on the amount of money you need to withdraw from your investments and “when” you’re going to need to withdraw it.

Those funds will then be strategically positioned in interest bearing instruments completely free of stock or bond market volatility.

Psychologically, this is difficult for some people to do who have never been in a position of “living” on the money they’ve accumulated.

They feel as though they need to squeeze out every ounce of return they can on every dollar they have.

That’s admirable for some, but extremely dangerous in your retirement years.

As difficult as it may seem at first, it’s critical that you get comfortable with the fact that not every dollar you own will be invested earning “market” rates of return.

Instead, you’re going to have different pockets of money that all have different goals, and thus different investment vehicles in order to support them.

You’re not going to ask every investment to get on the high speed express train.

Next week, let’s move on to Principle and Guideline #2 which is critical to your success.

Committed To Your Relaxing Retirement,

Jack Phelps

The Retirement Coach

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