Over two-plus decades as investment advisors, the question we get the most is…. How much money will I need to retire? And our typical answer is very succinct (but hopefully not annoying)… it depends. Investment goals/money needs are subjective, so this question has no clear answer.
If you start investing early enough, consistently make contributions, and stay invested in equities (stocks) for the long term, there is a good chance any needs will be met and then some. So, the answer to the retirement question is irrelevant. It’s a foregone conclusion that you will achieve the dignified retirement you deserve. The real question is, what about the then some?
Recently, Ruth Gottesman was in the news for her super generous donation of ONE BILLION DOLLARS to the Albert Einstein College Of Medicine in New York. This donation will cover tuition for EVERY student in perpetuity. Let that sink in for a moment. Think about the tremendous good this will do for… well, forever!
This is the precipice for this post. She has all this money to donate because her husband was a good friend of Warren Buffet and maintained his investment in Berkshire Hathaway for fifty years. Did the Gottesmans need all this money? No. But, by staying invested in the stock market forever… generations, for as far as the eye can see, will be impacted by this monumental donation.
Now, we do not rub shoulders with billionaires every day. But through our collective commitment to building wealth, many clients will only spend some of their money. And if they stay invested forever (as they will under our watch), their then some will also make an impact. It's impressive for a bunch of folks starting as middle class. In fact, impressive to even them… as it’s hard for them to believe.
As investment advisors between the ages of 50 and 60, we have many clients of similar ages. These clients will suffer the same good fortune as Ms. Gottesman, just on a different level. On average, clients aged 50 who have been with us from the beginning have a portfolio balance of $2.5 million. If they stay invested, their portfolio will grow to over $45 million by the end of it all… and that’s after they take their annual income for three-plus decades.
In the above chart, this investor continues to invest $20,000 per year until age 62 when he retires. From that point, the income this portfolio generates is plenty, allowing the portfolio to continue modest growth (6% annually) without the investor touching the principal balance. The power of compounding at its finest!
Many will ask the obvious question: Why stay invested in the stock market and absorb the risk of my portfolio decreasing in value if I already have enough to fund my retirement? And our retort would be: What risk? The income stream via dividends meets your needs, so why are we concerned with the ups and downs of your portfolio? You have the time to allow your portfolio to recover any momentary corrections.
The stock market does not care how old you are. History tells us that, on average, it finishes positive every three out of four years, and if you can stay invested for at least five years, the chance the value of your portfolio suffers a decline is minimal. Just because you are on the back end of your investing life does not mean the always forecasted, once-in-a-generation great economic collapse will occur.
So, why not keep it invested properly… mainly in equities? The positives are numerous… 1) You can create what we call generational wealth for your family, 2) Give to many charities, 3) Give to people who you know may need a financial boost, or 4) Be like Ruth and change the path of one institution. So much good can be wrung out of your simple but brilliant investment decision.
This is why you stay invested… forever.
Note: Nothing in this letter should be considered investment advice, research,
or an invitation to buy or sell any securities.