A prudent investment approach when constructing a portfolio is to include assets that are un-correlated (don’t always move in the same way) Assuming all assets provide positive returns over time, including “diversified” assets in a portfolio should even out returns over time – (higher lows and lower highs) but it does mean that some investments won’t be “working” at any one point it time. Over the short term this can mean underperformance when comparing returns to certain indexes. Ben Carlson’s article on this covers the last five decades and how different asset classes performed.
The definition of financial security – the comfort of knowing you will always have enough. So how does one achieve always having enough?
Regardless of the number that makes up “enough”, the only way to achieve “having enough” is completing some type of cash flow plan. As exciting as watching paint dry, cash flow planning is likely not high on your list of “got to do’s”. But a comfortable, financially secure and enjoyable retirement probably is – and yes, that’s right, the one will increase the odds of the other.
I have had clients whose cash flow planning was spending (and experiencing) so little that their assets continued to grow well into their retirement. I’ve also met the opposite individual who spent two much without any concern of having enough – Both of these clients would benefit from cash flow planning – the first to feel comfortable they can spend and the second to understand why they need to slow their spending.