Investing is hard


Much attention is focused on constructing cost- and risk-efficient investment portfolios. The Thrift Savings Plan does an excellent job of supporting this effort by offering only ultra-low cost index funds, and preconfigured asset allocation models, in the form of the L Funds, that are carefully engineered to provide the maximum expected rate of return for varying levels of investment risk. In fact, it offers everything you need to build a superior portfolio — one that can be expected to outperform anything else out there. A cost- and risk-efficient portfolio is essential to any plan that seeks to maximize the lifetime income your lifetime income.

But, it’s a mistake to think that this is all you need to be successful in investing for retirement income. The truth is that constructing an exceptional portfolio is only the first step. Think of it like building the perfect rocket for a trip to the moon and back. While the right rocket is essential for a successful trip, it does not, on its own, guarantee success. What you do with that rocket, how you navigate and work the controls, is also a pretty big factor in how things will turn out. The ship must be capable of the journey, but a good pilot can make up for certain shortcomings in design.

Most of what I see presented as investment advice in the popular media is entirely concerned with portfolio construction. It’s basically equivalent to Popular Mechanics for investors. This would be fine if it didn’t lead too many investors to conclude that this – a particularly constructed portfolio – is the key to financial success. Nothing could be further from the truth or more irresponsible in trying to educate investors. And it’s naïve for investors to believe it. Sure, you must build a portfolio capable of getting you where you want to go; of achieving your goals. Ideally, you’ll build one that’s exactly suited to doing this: to supporting your goals with a minimum of risk. It’s possible to build one that has little, or even no, chance of doing what needs to be done. Without a great deal of care and competence, it’s more likely that you’ll fail to do this than that you’ll succeed. There are lots of ways to build a lousy portfolio and precious few ways to build a good one.

Without a clear understanding of your goals, resources and constraints, it’s impossible to know what’s best for you. And, without that knowledge, and the right understanding of portfolio navigation and control, it’s impossible to know how to manage that portfolio along the path to a successful outcome. How much of your resources you expose to risk at any point, how you allocate your resources to the various investment opportunities you have at your disposal and which securities you use to implement that allocation are all critical decisions that have to be made, again and again, until your goals have been met, or your portfolio runs dry — whichever comes first.

To manage a portfolio successfully through a lifetime requires far more than simply deciding on the right asset allocation model today. It requires making that decision over and over again. When John Bogle, founder of Vanguard Funds, recommends that you use a total stock market index fund for your entire portfolio, he’s offering you a specific vehicle, not the operating instructions and a map. It’s a Porsche and you have the keys, but that’s all. Whether it will get you where you want to go depends entirely on how you drive it. Investment recommendations offered by journalists and entertainers is, by necessity, one-size-fits-all. In reality, however, different goals, resources and constraints require different investment strategies. How you invest should be carefully tailored to your plans.

Boilerplate strategies like buy-and-hold, value, growth and dividend investing don’t take your objectives and circumstances into account and, therefore, can’t be relied upon to succeed. What works for one investor might be a formula for failure of another.

Like any complex, lengthy and important project, managing your retirement portfolio to meet your needs requires skill, attention and effort from beginning to end. It’s a process that begins with plotting a course to your objectives, measuring your progress against expectation frequently, and correcting your course as you go, before it’s too late to recover from the unexpected.

When it comes to investing for maximum retirement income, there simply is no such thing as a reliable, set-it-and-forget-it “investment strategy.”

Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Ashburn. Va. Email your financial questions to


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