Retirement, Risk and Return

If investors could take no risk and still maintain the lifestyle in retirement, why wouldn’t all investors just invest in T-Bills?  

David Booth, CEO of Dimensional Fund Advisors (DFA)

That is because investors understand the risk of purchasing power. The Risk of Purchasing Power deals with the declining value that money has – or to put another way, nearly everything that you need to purchase each year in retirement will increase in price.


FRN - US Dollar Purchasing PowerMany individuals focus only on principal risk – the loss in principal.  We strongly believe that those individuals who only focus on principal risk will run the real risk that their investments will not keep pace with the raising costs of the lifestyle, especially in retirement.

David Booth, one of the DFA founders and current CEO, gave a video interview where he discusses what risks investors need to focus on when developing an investment portfolio. He helps explain the historic returns experienced by investors overtime. As a former professor, he uses charts and graphs to illustrate his points.

He also discusses the low bond interest rates in place today, and the real risk to maintaining one’s lifestyle in retirement having a portfolio built to maintain the principal amount. We have discussed this dilemma in previous posts, such as LONGEVITY RISK.

Click on the words to the right to begin David Booth’s video which is as relevant today as it was in 2009: RETIREMENT, RISK and RETURN

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About Dan Crimmins

Dan Crimmins, co-founder of Crimmins Wealth Management, is a financial coach and fee only financial planner. Have a financial question? ASK DAN


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