(Part two of this review, Steve Thorpe’s compilation of the best advice and insights from Unveiling the Retirement Myth by Jim Otar, will run tomorrow.)
For individual investors planning for retirement, basing those plans on averages just doesn’t cut it. For example, one might estimate an investor’s expected life span, future investment returns for a given asset mix, inflation rates, etc. But the investor may live longer than average, the sequence of future investment returns could easily go against him or her, likewise inflation effects can be enormous over time. Bad luck in any of these areas can easily deplete a retiree’s investment portfolio to zero during his lifetime. Unfortunately we are unable to change the luck factors that can so profoundly affect a retiree’s future income stream – or lack thereof.
Jim C. Otar, a financial advisor, Certified Financial Planner, and engineer, clearly explains these topics and more in his book Unveiling the Retirement Myth: Advanced Retirement Planning based on Market History. This review contains only a sampling from this fine body of work; accordingly I’d recommend that you pick up a copy if you want to understand all the details.
Most Research and Many Strategies Are “Just Plain Garbage.”
He covers a lot of ground in the book including: diversification, rebalancing, optimum asset allocation, warning signals of potential diminishing luck, flaws of investment simulations, budgeting for retirement, determinants of a portfolio’s success, and many others. This review will focus mainly on two core insights. First, that luck plays a remarkably large part in how well any retirement plan holds up. Second, that lower withdrawal rates, not savvy asset allocation, is the best defense against bad luck. Continue reading