Fixing a Leaking Nest Egg is More Important than Chasing Returns

The wealth management industry focuses on returns. This is how they sell their funds. But Baby Boomers in retirement should ignore this noise and focus on costs.

When in retirement and not adding to your nest egg any costs if not controlled can seriously deplete it. These costs primarily are Fees and Charges, Taxes, Inflations and Stock Market Losses.

I am included Stock Market losses here because if your nest egg suffers a large loss it will seriously cost your nest egg dearly.

If you look at any business out there they focus on costs. You are in the business of managing your nest egg in retirement. As such you too need to focus on costs.

Saving just one dollar this year means that dollar can be put to work earning income for your nest egg. If you pay it to your financial planner, the tax man or you lose it due to stock market losses it will cost you money in the long term.

I find it amusing that we are so busy chasing returns we think they will make up for the costs. If we get consistently good returns then that is probably true. If you are lucky enough to find a financial planner who can get you good returns consistently the paying them a higher fee is warranted. There are people like that out there.

But in the main most financial planners are of the buy and hold mentality and want you to sit through the bad times and hope you will come out the other end whenever that will be with your nest egg intact.

I can’t emphasise enough the costs need to be front and center when managing your nest egg.

In a worse case scenario this is what can happen:

  • Fees of 2-3% over 30 years will end up with you paying your financial planner more that you pay yourself. If you need more information on this go to John P. Greaney’s excellent Web site Retire Early Home Page and read some of this articles.
  • If your nest Egg loses 40% of its value as happened to some retirees in 2000-2003 the balance of 60% may not be enough to recover the capital and allow you to continue drawing a pension.

What is worse is you can control these two nest egg eaters to some extent.

You need to negotiate your fees with your financial planner and try to get them down to no more than 1% if possible. Unless they really do provide you with consistent returns.

You need to employ defensive tactics to protect your nest egg against large stock market losses. This may include moving your money into cash. If you do move into cash and are earning 1 or 2% at the bank whilst the market drops 40% aren’t you in front? As Al Thomas of Mutual Fund Magic says you have a ‘Reverse Profit” of 40%. Not only that you will have the bulk of your money left to buy cheap stocks when the market turns.

I have just received an email from someone who has visited my Blog. They have the opinion that:

“Your philosophy of bailing out of the market to prevent your portfolio ‘falling 40%’ assumes that one can be in the market when it is rising and out of it when it is falling. This is impossible.”

I asked them to clarify why they believe it is impossible. I now have their response. In my next post I will include the details of their email telling me why they believe this to be the case and my response to it.

I respect the views expressed but do not agree with them. My Blog is based on the need to take responsibility for my nest egg and actively manage it. This could be my most important post to date.

One Response to “Fixing a Leaking Nest Egg is More Important than Chasing Returns”

  1. […] admin ’s site is fantastic! I thought I’d share the latest post on the site which grabbed my attention: Fixing a Leaking Nest Egg is More Important than Chasing Returns […]

Leave a Reply

CommentLuv badge