Your parents’ retirement plan will not work for you. Why? Because it’s not working for most parents. How can we expect it to work for us?
All the financial advice we’ve received throughout our lives and about what we should do financially to be prepared for retirement doesn’t work. The proof is that “80% of U.S. pre-retiree households are financially unprepared for a secure retirement.”
Let’s talk about the traditional strategies for funding retirement and why we should not trust these methods:
Professional Management…
Under this retirement strategy, I’m lumping 401(k)s, IRAs, and financial planners/advisors into the same group. That’s because, under this strategy, you’re relying on someone else to manage your investments and staking your fortunes to the purported skills of someone else.
Should you rely on professionals for your retirement? No, you should not. According to a 2020 report, over 15 years, nearly 90% of professionals (i.e., fund managers) failed to beat the market. Rosenberg, E. (2020, July 31). “Most investment pros can’t beat the stock market, so why do everyday investors think they can win?” Business Insider.
DIY…
The do-it-yourselfers are investors who invest in the markets themselves and without the help of professionals. How do they fare? Exactly as you would think. Think about professionally managed funds. Suppose the professionals running these plans are often Ivy League-educated investors who spend their entire workday attempting to outperform the stock market and fail to beat it.
What chance does the individual investor have of doing it on their own? Very little chance, as data from J.P. Morgan Asset Management proves – establishing that the average retail investor underperforms the market – and not by a little – over 20 years.
The 60/40 Portfolio…
The 60/40 strategy is a popular strategy used by both professionals and individuals. The premise of the 60/40 strategy is to allocate 60% of your assets to stocks, and 40% is allocated to a mix of bonds and cash.
According to a recent Forbes article, the 60/40 strategy has been one of the most dominant investment approaches over the last 92 years. This strategy may have made more sense in the 80s and 90s when bonds and treasury rates were much higher than they are now, but that strategy is no longer effective. According to J.P. Morgan Asset Management, following the 60/40 strategy would have yielded returns of -17% in 2022.
Social Security…
Relying on the government for anything – let alone your retirement – is foolish. Don’t rely on social security for your retirement. That’s because It may not even be around when that time comes. According to at least one study, the social security trust fund that funds social security payments is expected to be depleted by 2034.
Refrain from doing what your parents are doing for retirement, or you will likely be lumped in with that 80% of retirees not prepared for retirement.
To retire early, don’t follow tradition. Zig when everyone else zags and follow the path of the Ultra-High-Net-Worth investors (UHNWIs) who follow their own rules by taking charge of your financial destiny.
Smart investors take charge of their investments. They tow a fine line between being proactive and deferring to experts. They know that if they do too much that that defeats the whole purpose of financial independence.
What’s the use of having all the money if they just switch from being a slave to one master over to another? Balance is the reason smart investors gravitate towards passive private investments. By teaming up with seasoned experts with a track record of success, sophisticated investors can dictate where their money is invested without sacrificing the time and relatively high capital of doing it themselves.
As long as an investment meets the following criteria, smart investors are happy to leverage the expertise of others:
Passive Income…
Passive cash flow is the key to wealth. It allows for reinvestment and the compounding of wealth in your sleep. Smart investors can still be in control and direct how their capital is invested, but after that, they take their hands off the wheel and reap the rewards of someone else’s hard work. When passive income can meet all of your needs and expenses, then you no longer rely on a 9-5 job. This is the definition of financial independence.
Hard Assets…
Hard assets like commercial real estate have underlying values that appreciate over time, making it so you can never lose your entire investment. Commercial real estate isn’t going anywhere and has a long track record of growth and performance.
Noncorrelation to Broader Market…
Private investments are uncorrelated to the broader market and therefore insulated from broader market volatility. Private passive investments are illiquid and therefore insulated from market runs caused by the madness of the crowds. This illiquidity and noncorrelation to the broader markets give smart investors peace of mind during uncertain times.
Tax Benefits…
To the smart investor, a penny saved is just as valuable as an additional penny earned. A dollar saved in taxes is just as valuable as an extra dollar of revenue generated. Smart investors gravitate towards passive investments that generate multiple tax benefits, including the pass-through of deductions, depreciation, tax credits, and other benefits.
Your parents’ retirement plan won’t work for you. You have to take control and go your own way.
Fortunately, many UHNWIs have already blazed a trail for you to follow. You have to take the plunge and consider private investments like real estate that meet all the criteria demanded by UHNWIs essential for creating, building, and maintaining wealth.
