I recently received an email from a listener who told me he wants to beat the S&P 500 index.  If you are retired or close to retirement, I don’t think that’s wise. At that stage, I think you should not be looking to grow your investments. I believe you should be in protection mode, where your main goal regarding your investments is the preservation of your standard of living.

At Money Matters, we advise our clients to take only as much risk as is necessary to accomplish their financial goals. It’s one of our foundational philosophies, because we want our clients’ money to last as long as they do. In order to do that, we don’t need to beat the S&P, but protect the investments they already own.

For example, if you had $10 million in investments and lived on $100,000 a year, you would only need a 1 percent rate of return in order to support your lifestyle.  In that case, I would argue that you should have no stock market risk. You could probably make that return with a saving account, or maybe aim for a low-risk portfolio with a 3 percent return where you’d pocket $200,000 a year. Why try to beat the S&P? You’ve already won the game.

If instead you had $1 million and still had a cost of living of $100,000 a year, would I advise you to chase a 10 percent rate of return? No. In my opinion, there’s no way you could get that rate of return consistently over time. Instead, I’d ask you to take a hard look at your cost of living.

I believe that planning for retirement should not be a growth problem, but a cash flow analysis. Most people, I think, would be happy to cover their expenses for the rest of their lives regardless of the rate of return they receive from their investments.

At Money Matters, we utilize a buy, hold and sell strategy that helps to protect our clients from the market’s potential downside. It’s another way we mitigate risk. This strategy told us to sell in November 2007. Those who did so were out of the stock market during the 2008 crash. Our sales signal came again on December 17, 2018. We’ve been out of the market since then, not looking to beat the S&P, but in protection mode, trying to preserve our clients’ retirement. If you’d like to do the same, give us a call.