The Retirement Rise 2.20.2023
On a strong economy, crappy private investments, and spending less on what you don't actually need
This Week’s Good Financial News
Retail sales jumped 3.0% in January, according to the Census Bureau. The increase was more than expected and the largest gain since 2021.
Recent economic data dampens recession expectations, which always seemed more about feelings than hard data. This negative media bias is one reason I think focusing on positive financial news is essential and also why I love writing this newsletter!
From the WSJ:
The retail spending spurt came as goods prices cooled significantly from an earlier run up in prices that drove the inflation surge when pandemic-related supply bottlenecks collided with surging demand as the economy fully reopened. Prices for core goods, excluding volatile food and energy categories, rose just 1.4% last month compared with a 7.2% increase for core services, excluding energy.
An Investment Note for Retirees
If you work as a financial planner long enough, you will develop a disdain for certain investments and how they are sold to investors.
Me, I disdain private real estate funds and private equity. However, we see both from time to time when we review prospective client portfolios. Usually, each comes with illiquidity (i.e., you can’t sell for a period of years), high internal fees, and poor returns. So, more often than not, we work to help the client unwind the position and invest in a diversified portfolio of global companies for long-term investment success.
Here’s a rule of thumb: if an investment needs to be sold, like an insurance product or a private deal, immediately take five steps back, turn, and run.
Usually, the only winner in these transactions is the salesperson, who will likely make a hefty commission, and the fund manager, who will likely charge high internal fees.
Here’s some interesting data to back up what we generally see. According to Cambridge Associates, publically traded REITs, which are traded on the open market and have intraday liquidity for investors, outperformed their private counterparts by 3.91% for the 25 years up until 2017.
Public REITs generally use less debt, which means they outperform private counterparts with less leverage. Wow!
A Thought on Retire on Purpose
In the book Broadcasting Happiness, author Michelle Gielan tells the story of a couple concerned about their retirement. The husband was stressed because he felt they would run out of money in their 80s, given current spending and rates of return.
The wife, a skilled thinker, started wondering what he was extrapolating into the future that they didn’t need.
Her answer? The house!
“Honey,” she says (and I’m paraphrasing), “You are assuming we stay in our current house indefinitely. What would happen if we moved to the southwest where houses and the cost of living are lower?”
It turns out that solved the issue.
So here’s the question: What belief or supposition are you extrapolating into the future that significantly reduces your present stress when modified or assessed differently?
So often, prospective retirees and retirees don’t need more money. They need less of whatever they don’t need.