Balancing Your Assets

One common theme I’m seeing with my new clients is that nearly 100% of them have balances in their savings, investment, and retirement accounts. The other “elephant in the room” is that they rarely have any kind of plan or strategy for how to use these accounts. Their savings and emergency funds are earning virtually nothing when they could be getting upwards of 3-5% if positioned properly.

Investment accounts are a jumbled mess. Most clients have no idea if they are invested, how they are invested, if they meet their current risk tolerance, or how they have performed over the last 1, 5, or 10+ years. In fact, given last year’s dismal performance, many clients don’t even open the envelopes when their statements arrive in the mail! In addition, I’ve seen upwards of 5-7 separate 401(k) accounts where clients have changed jobs and just left the assets in their former plan. Maybe this resonates with you?

You would be amazed what I’ve heard time and again as I’ve gathered all of these documents and statements for evaluation. The common themes are: “I just left them there because I thought there were no fees,” or my favorite, “I totally forgot about that account; I set it up with my fraternity brother’s nephew years ago and he’s no longer in the business.” Yeah, I can’t make that one up! (See Chapter 20 in Castles & Moats.)

Everyone has heard the saying “time is money” and it’s very true with regard to the above scenarios. For the sake of conversation, let’s say that there are hidden fees inside 401(k) accounts (which could be upwards of 2-4% netted out of the annual performance) and that each account has an annual maintenance cost of $35-75. That could be as much as several percentage points off of your annual returns. Also take into consideration that each account is horribly invested. All of that to say the fee and performance drags on your investments could be significantly damaging to you.

Just for illustration, per www.tradethatswing.com, the historical average annual return of the S&P 500 is 12.39% over the last 10 years, as of the end of June 2023. Over the last 20 years, the average return is 9.75%.

Enter a mathematical anomaly called the “Rule of 72,” which represents a simple approach to approximate how long it will take invested capital to double in value.

RULE OF 72 = 72/Rate of Return (%)

Using the 10 year average annual return stated above, 72 divided by 12.39% equals 5.81 years. So, every 5.81 years, your account balance would have doubled over that 10-year period. Conversely, if you’re that person above with multiple accounts that are never looked at, and you’ve realized an average annual return of 4.25%, that meant that every 16 years, your account balance would have doubled. If those accounts are tax-deferred and inflation has averaged 3%, you’re going backwards, never to recover. Chapter 21 in my book shows how asset allocation through risk management and diversification is always in your best interests. If it won a Nobel Prize in Economics, it’s worth your consideration!

So, your CALL TO ACTION is simple. Gather those statements, take them out of the envelopes, scan them, and email them to me at brian@briancarden.com. I promise you this will make a huge difference your life, both today and later when we adjust your investment strategies from accumulation/preservation to distribution. The more efficiencies we apply to your investment and retirement strategies, the more enjoyable the journey will be!

As always, I’m grateful for your kind words on my blogs, media posts across the socials, and of course my book. It’s what drives me every day!

Oh…one final thought, since this is the time of year where I have mixed emotions: Summer is slowly coming to an end, but very soon I’ll be able to hear my favorite words: “IT’S FOOTBALL TIME IN TENNESSEE.”

Many thanks,

Brian

**Examples are intended for illustrative purposes only and may be not indicative of your situation. Individual results may vary.