Saving for Retirement and How to Handle Luck By Laetitia Peterson*
One of my favourite nonfiction holiday reads was Everything You Need To Know About Saving for Retirement by Ben Carlson, a fellow financial adviser at Ritholtz Wealth Management in the US. Ben is the co-host of the Animal Spirits podcast and author of the popular blog, A Wealth of Common Sense.
It can be difficult to stick with your own investment plan when you see others hitting the jackpot during a raging bull market. But there are some upsides to being comfortable in your own skin as an investor. For me, building wealth slowly over time suits my personality better than the alternatives. "And the best part about building wealth slowly is…it actually works.” At The Private Office, we advise people with a money personality like Ben’s and mine who choose to build their wealth slowly and don’t want to take on boatloads of risk. Some people prefer daytrading or concentrated deep value investing or venture capital or investing in private businesses or rental property or start their own businesses to build their wealth for retirement. That’s fine. There is no one size fits all.
As a financial adviser to many members of the legal profession and an investor myself, I identify with Ben’s confession. “I’m never going to make millions of dollars on a single investment." "I’m never going to create a startup that changes the world and becomes a unicorn." "I’m never going to get rich overnight." "It’s simply not in my DNA." Do I get a touch of jealously when I see stuff like this? Sure. You wouldn’t be human if you didn’t dream about huge or seemingly easy riches. But I’m OK with the fact that easy riches aren’t in the cards for me. Instead, I’ve chosen the slower path to building wealth. There are some downsides to this path. I don’t get to brag on social media about how much money I made on a high-flying stock or business venture. I don’t get to become rich overnight. I don’t get to become a guru who preaches the easy steps you can follow to become wealthy. I don’t get to create a world-changing company. I don’t get to write a medium post about how transcendental meditation changed my life once I became a billionaire. And I don’t get to know what it’s like to deal with a life-changing amount of money.
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Talking about not being comfortable with taking risk, an objection that keeps coming up with clients is market timing risk. The fear of bad luck is often holding clients back from getting started on an investment portfolio. You could have been lucky by retiring in 2010 right before the onset of a decade-long bull market and enjoyed higher than expected returns. Or you could have been unlucky by retiring in 2000 just before a lost decade of global share market returns which included two enormous market crashes (the tech wreck and Global Financial Crisis). It’s also important to remember it’s not so much the overall market return that matters with market timing risk but also the order in which you receive the returns. For example, from 2000-2020, the NZX 50 Index returned 10.6% annually.
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