A Picture of Disaster

Comments by David Holmes

Registered Investment Adviser June 24, 2015A.D.

800327-8963

This pictured ad in
a current
FORBES,
thoughtfully
considered, is both
instructive and
alarming!
While openly reporting
its better performance
compared to an Index
(MCSI EAFE), the
long term disaster
effects of accepting
relative returns as
opposed
to
arithmetically required
20% Average Annual
Returns
to
attain
necessary
family
estate growth and
stability is clear and
shocking! Think about
it: filling the gas tank with 10 gallons of water or even 10 gallons of diesel fuel will never suffice
any more than accepting relative returns for investing. A 5 Star rating neither correctly informs
nor produces! 20% is needed.
Of course the 7.1% is better than 5.3% but neither will work for the family! Neither will
work whether building a retirement in 20 years or living on the Estate for 30 or more years.
20% is 20% and a minimum of 20% is required. Paul identifies the error of this relativity
principle in Second Corinthians2Cor.10:12 comparing themselves with themselves as opposed to
truth!
So, lets use the 7.1% while saving $4,000 annually and see (A)what it builds in 20 years and
(B)the estimated annual income it can be reasonably expected to provide with the usual industryrecommended 5% maximum withdrawals as opposed to the arithmetically required 20%
building and my recommended maximum of 17% annual withdrawals.
AAG
7.1%

In 20 years
$177,554

5% Withdrawals
$8,877 annually

Reality / Needed
$40,000 annually (-15.4% of net Principle)

20%

$896,102

17% Withdrawals
$152,337 annually

Plenty of income especially if ROTHed

PONDER: factually and arithmetically, with only 7.1% gains and later withdrawing a necessary
$40,000 annually, we have to and can foresee that in less than 6 years the Retirement estate will
be consumed, gone! Real arithmetic again. The family is not going to live on a mere $8,877
annually. Yes, they can make the funds last some longer by withdrawing less, but The above
Fidelity chart has the usual required cautions about Past Performance but Why would
anyone accept 7.1% when at least three times that is required? Because, many are, but not
my clients???