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Hey Guys, it turns out
performance really does matter! No, I’m not talking about
what you think—I’m referring to the performance of your
investments! One mistake people often make is forgetting
that investment performance impacts their lifestyle.
Why are you investing in the first place? You have a goal or
a dream that you want to accomplish. For some of my clients
that dream is to have the financial freedom to travel and to
explore, to go and see and do. For others that dream is
having the financial freedom to be at home and spoil their
grandchildren.
What’s your dream? It might be having enough money to pay
for your children’s college education, help them start a
business or buy their first home. Maybe it’s retiring early
so you can bicycle across America.
Your dreams are the end game; investing is only the
means to reach them. That’s why performance really does
matter. The return on your investments determines
when and if you live your dream. The better your
performance the sooner your dreams will be realized.
When you invest you accept a certain level of risk. Not all
investments at that level of risk will perform the same.
Most will perform average. Some will perform less than
average while others return more than average. Selecting the
investment that performs above average versus one that is an
under-achiever can dramatically affect how long it takes to
reach your goals.
Ted is 50 years old and his dream is to have a nest egg big
enough to allow him and his wife, Darlene, to live
comfortably for the rest of their lives. They would like to
retire as soon as they can and pursue their dream of being
missionaries. Proper planning determines they need $750,000
to live their dream. They’ve worked hard, sacrificed to
build up their retirement savings and have accumulated
$375,000 already.
Their return will determine how long it takes. Let’s assume
that Ted has a choice of three similar investments. One is a
poor performer and only averages 5% per year. If he chooses
that one, Ted will have to work until he is 64 years old.
The second performs average and earns 7% per year allowing
Ted to retire at age 60. And if the third was at the head of
the class and averaged 10% per year they could be
missionaries at age 57. By the way, we’re assuming they
don’t add to their retirement savings.
Think about that! By improving the performance of their nest
egg Ted can retire 7 years sooner. Do you really want to
prolong your retirement an additional 7 years?
Increasing your performance just a small amount will, over
time, allow you to reach your goal sooner.
When many of my clients first met with me they were
in average performing investments. By spreading their nest
egg among several different investment baskets we reduced
their overall risk. Then by focusing on each individual
investment and searching far and wide for those that had
consistently performed at the head of the class we were able
to improve their return. The result is that they will be
able to reach their dreams sooner than they otherwise would
have.
How can you reach your dreams sooner? Make
sure you pay close attention to the performance of your
investments. It is especially easy to see how mutual fund
and variable annuity investments rank through Morningstar.
I’ve provided links to each on my website at
www.guardingyourwealth.com.
For instance, a Morningstar report will tell how a mutual
fund’s performance ranks with all other mutual funds that
have the same objective. It provides an independent,
objective report that will let you know how well your
investments have performed. It will also help you see
whether your advisor is doing a good job for you.
Your investments should consistently rank in the top 10-15%
of similar investments. Check the rank before you invest but
then monitor the rank every 6 months. If your investments
aren’t performing then you maybe you should look for a
different advisor because, hey guys, it turns out
performance really does matter!
I want to hear from you. Share your own investing
experiences, your story might even be the basis of a future
article!
For free, clear, unbiased advice send your questions or your
personal story at www.guardingyourwealth.com/askjeff.htm.
Mr. Voudrie is a Certified Financial Planner, nationally
syndicated newspaper columnist and President of Legacy
Planning Group, Inc., a Private Wealth Management Firm in
Johnson City, TN. He can be reached toll-free at
1-877-827-1463 or at
jeff@guardingyourwealth.com. |
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