There is Always a Reason to Sell…Unless You Want to Achieve Your Goals

This is a guest post written by our friend William G. Chettle who is a Vice President with our partner Loring Ward.

The problem with good advice is that it tends to be boring, especially when it comes to your portfolio.

This is a good thing.

For investors, excitement can be your worst enemy. Excitement generates headlines; it causes people to be greedy or fearful; it drives volatility and speculation — all resulting in too many people compromising their financial futures.

If you’ve been invested over the past 15+ years, you’ve certainly lived through more than your share of excitement. In the period from 2000 to 2015, we experienced two bear markets, the Great Recession, war, terrorism and 11 of the 20 worst days in the stock  market  since 1950!

Did you stay invested, or did you listen to the head-lines?  Were you globally diversified, or did you try to guess which stocks or sectors or countries would outperform?

This chart shows how two portfolios did during  this “exciting” 15-year period. Both portfolios are owned by couples in retirement making regular withdrawals from their portfolios to sustain their lifestyles. They are both smart and prudent and stayed the course during this tumultuous period.

However, the Smiths invested in a portfolio that tries to mimic the S&P 500. On the other hand,  the Johnsons invested in a globally-diversified, index-type portfolio that is 65% stocks/35% bonds and includes allocations to small and value stocks in the U.S. and abroad, as well as U.S. REITs and emerging markets.

Both couples start with a $500,000 portfolio and withdraw 5% of the initial value ($25,000 of initial the $500,000 starting value) on January 2 each year. This withdrawal is increased 3% each year to help the couples’ incomes keep pace with inflation.

Your goals and comfort with risk will determine what portfolio is right for you, but the Johnsons prefer a moderate portfolio since it is right in the middle between  a  conservative,  mostly-bonds  portfolio and an aggressive,  all-stock portfolio.

As the chart below shows, over this time period, the 65/35 asset class portfolio mix of the Johnsons had an annualized rate of return around 5.64%, while the Smiths’ S&P 500 returned just 4.06% a year. And the Johnsons’ portfolio experienced much less volatility (shown as “Risk” in the chart) as well.


Return & Risk for Moderate and S&P 500  Portfolios 

Johnson’s Moderate Portfolio            Smiths’ S&P 500

        Return: 5.64%                                     Return: 4.06%

          Risk:   12.95%                                    Risk:    18.64%

               (Standard Deviation)                           (Standard Deviation)

Lowering volatility is important for investors, especially those making regular withdrawals, because it can keep your money working for you longer. And this is exactly  what happened for the Johnsons.

By 2015, they still had $375,539 in their portfolio (and this is after withdrawing $503,922 in  income).

Meanwhile, in 2015 the Smiths ran out of money.

It isn’t difficult to be a better investor: Diversify globally, don’t try to beat the market, don’t panic…and save excitement for the non-investment parts of your life.

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The foregoing content reflects the opinions of Crimmins Wealth Management and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.

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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