Is Chasing Returns Getting You Down


How come I'm not beating the market averages?

It's a refrain I hear from time to time in my classes and the bane of many investor's existence. Keeping up with the (DOW) Jones - so to speak. Outpacing the S&P 500 or Nasdaq or Russell 2000. As we will get to later, this sentiment alone causes many an investor to act irrationally and to take on additional risk - which further exacerbates the problem and reduces the very returns he or she wants so strongly desires.

From my friends at www.realinvestmentadvice.com:

“Comparison in the financial arena is the main reason investors have trouble patiently sitting on their hands, letting whatever process they are comfortable with work for them. They get waylaid by some comparison along the way and lose their focus. If you tell investors that they made 12% on their account, they are very pleased. If you subsequently inform them that ‘everyone else’ made 14%, you have made them upset.“

This is why it’s important to run your own race - to use a sentiment that's used all the time in my favorite sport - running. (Yes, not baseball - running.) I'm the guy who watches the marathon on TV - but I digress.

Back to your retirement.

It's best to develop a retirement plan with a reasonable rate of return that takes into account not only your risk tolerance, but also how the market is priced. There is no rule that says you have to be 100% invested in equities -100% of the time. Your goal always is to manage the maximum drawdown - how far down your money goes when the tide turns.

It’s not up years that should concern you, it’s the down years.

You’ll likely NOT beat the market averages and there are several reasons why:

Indexes don't have cash - but you do. (Most investors carry some cash - which reduces returns)

Indexes don't have a life expectancy - but you do. (The index does what it does on it's own time table. You only have so many years for your returns to compound.)

Indexes don't have to compensate for distributions to meet living requirements - but you do. (It works like this: If you sell when the index is high (highly suggested) you will do well, sell on the downswing - not so good.) The point is that indexes don't figure in you fixing your car or taking your grandchildren on vacation.)

Indexes have no associated taxes, costs or other expenses but you have all the above.

Indexes don't have the ability to substitute at no penalty - but you don't get penalty-free changes to your portfolio.

This is the biggest albatross of them all. Suffice it to say, when the market cap of an S&P 500 company falls, they just replace it in the index. If you own the same company and it declines, you suffer the consequences.

They get a mulligan as it were - to coin a golf phrase. A do over. Try that trick with your stockbroker.

I point all this out to say that index averages are a different animal.

The bottom line is that chasing returns or comparing to indexes are behaviors that cause investors to take on more risk. A better strategy is to “run your own race” by determining a reasonable rate of return for your retirement goals and sticking to a strategy that gets you there in one piece!

That's just the way it works!

Required disclosures: Investment advisory services offered through Brookstone Capital Management, LLC (BCM), a registered investment advisor. BCM and (Strataxa Retirement Advisors, LLC) are independent of each other. Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents.

Information provided is not intended as tax or legal advice, and should not be relied on as such. You are encouraged to seek tax or legal advice from an independent professional


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Darryl Rosen MBA, RICP

Darryl Rosen is the founder of Rose Advisory Group, and operates www.RealRetirementAdvice.com as a way to help others create their ideal retirement. He is obsessed with helping people create safety, simplicity and strength in their financial future. Darryl’s clients enjoy his straight-forward, plain-spoken guidance, strategies to minimize taxes and ability to generate investment returns, while minimizing risk so his clients can sleep at night! Darryl is licensed to provide guidance on securities and insurance solutions and has achieved the highly desired Retirement Income Certified Professional (RICP) designation.

Darryl is the creator of the well-known SECURiMENT™ Retirement Planning Method. A simple to understand and implement planning method that demystifies retirement planning so that people can take action. Visit Rose Advisory Group to learn more! 

Investment advisory services offered through Brookstone Capital Management, LLC (BCM), a registered investment advisor.  BCM and (Rose Advisory Group) are independent of each other.   Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. Information provided is not intended as tax or legal advice, and should not be relied on as such.  You are encouraged to seek tax or legal advice from an independent professional.