DIY Danger · Client Acquisition Academy

DIY Danger

I always get a little nervous when sharing things (pressing post on LinkedIn is always a bit of a 'what the hell are you doing moment'). However, I figured I'd give it a try to share some of my LinkedIn posts here, to get advice/critique. I've modified the Sequence of Returns story, added some content, as well as a chart (visuals are always more powerful, at least foe me) to tell the story of danger for the Do-it-Yourselfer.

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𝐃𝐈𝐘 𝐃𝐚𝐧𝐠𝐞𝐫 𝐀𝐡𝐞𝐚𝐝!

Two couples meet during a community event. Over the course of dinner, they discuss their retirement experience.

Couple #1: We have enjoyed a wonderful retirement to date. We've enjoyed vacationing, spending money to help the grandkids get started in school and never worried about money. If anything, we wish we had decided to retire sooner.

Couple #2: Our retirement has been stressful. We've barely travelled and have been constantly stressed about running out of money. We've thought a lot about it lately and wish we had held off on the decision for 3-4 years - we certainly could have used the additional cash.

Couple #1: Sorry to hear that. Did you work with an advisor to grow your wealth and plan for retirement? If so, who did you work with. We worked with ABC Financial for about 20 years and are happy we did.

Couple #2: No we did not. We were always comfortable with, and enjoyed equity trading. Our daughter 'smartened us up' to social media, so a lot of our retirement planning strategies were driven by financial influencers on Twitter. Honestly, it was ok while we were saving, but we weren't prepared for spending in retirement.

Couple #2 shared their portfolio with Couple #1. Pre-retirement they looked similar and, to be honest, things performed well when saving. How could they have such opposing experiences in retirement?

Couple #2 retired 6 months before a market downturn and Couple #1 retired 3 years later when the downturn was finished and markets began to recover.

This leads us to the concept of sequence of returns risk. Short form, sequence of returns risk that the timing of withdrawals from a retirement account will have a negative impact on the overall rate of return available to the investor. The chart below displays this - poor performance at the beginning of your withdrawal period can produce a situation that is difficult to recover from. In the example below, it would be :

- running out of money at Age 81 vs having a healthy estate to pass down to your loved ones at Age 90

- as Couple 2 mentioned, compromising on your desired lifestyle in retirement

This risk is the reason that many managed portfolios become much reduced in overall risk when approaching retirement, allowing retirees to bucket investments by risk category to match near, medium and longer term expenses. The major risk, titled DIY-Danger, usually ignores this in the pursuit of returns.

𝐖𝐡𝐚𝐭 𝐚𝐫𝐞 𝐲𝐨𝐮 𝐝𝐨𝐢𝐧𝐠 𝐭𝐨 𝐦𝐢𝐧𝐢𝐦𝐢𝐬𝐞 𝐬𝐞𝐪𝐮𝐞𝐧𝐜𝐞 𝐨𝐟 𝐫𝐞𝐭𝐮𝐫𝐧𝐬 𝐫𝐢𝐬𝐤?

You only get to retire once. If you want to learn more, please DM and let's get started on designing your ideal retirement.

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