October 23, 2025 • 16 mins
What if the next 10 years bring just 3% returns from the S&P 500?
In this episode, we turn that forecast into a real-world retirement plan—not panic. You’ll learn how to stress test your portfolio, build flexibility into your spending, and design a withdrawal strategy that can survive tough markets.
Listen as Ari and James break down:
Sequence-of-returns risk — why bad early years hurt more than bad averages.
The modern 4% rule — how to use it as a guardrail, not a guarantee.
Diversification that actually works — adding small caps, value, international, and bonds to reduce risk from overexposed tech-heavy portfolios.
Tax-smart moves — Roth conversions, cash buffers, and dynamic withdrawal rules that adapt to changing markets.
Whether you’re planning to retire early or just want peace of mind through an uncertain decade, this guide gives you a clear, flexible framework—so your lifestyle isn’t dictated by Wall Street’s forecasts.
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Advisory services are offered through Root Financial Partners, LLC, an SEC-registered investment adviser. This content is intended for informational and educational purposes only and should not be considered personalized investment, tax, or legal advice. Viewing this content does not create an advisory relationship. We do not provide tax preparation or legal services. Always consult an investment, tax or legal professional regarding your specific situation.
The strategies, case studies, and examples discussed may not be suitable for everyone. They are hypothetical and for illustrative and educational purposes only. They do not reflect actual client results and are not guarantees of future performance. All investments involve risk, including the potential loss of principal.
Comments reflect the views of individual users and do not necessarily represent the views of Root Financial. They are not verified, may not be accurate, and should not be considered testimonials or endorsements
Participation in the Retirement Planning Academy or Early Retirement Academy does not create an advisory relationship with Root Financial. These programs are educational in nature and are not a substitute for personalized financial advice. Advisory services are offered only under a written agreement with Root Financial.
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Ari Taublieb, CFP ®, MBA is the Chief Growth Officer of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
SPEAKER_01 (00:00):
James, just before we started recording, we were
talking about family.
And I'm recently married andthere's talk of children.
Who knows exactly when?
You have two children at themoment.
I imagine a lot of peoplelistening right now, there might
be some grandchildren on theway, but that's maybe not the
only thing you're thinkingabout.
If you are thinking about anearly retirement or retirement
(00:20):
at any time, there's probably asmall part of you going, well,
what if my returns don't do whatI expect them to do?
How will that change myretirement?
And the last thing you want isfor your returns to not maybe do
what you hope.
And now your grandchildren,maybe you can't support them to
the degree you want.
Or worst case, you have to goback to work, which we certainly
want to avoid.
So today's topic has actuallybeen brought by a comment on
(00:43):
YouTube.
So for those of you who areleaving comments on YouTube,
thank you, because that is howwe actually decide what we talk
about today.
And I'm gonna go ahead and readthat comment now.
So this comes from UT Savrati,who says, What's your
perspective on the recentstrategy paper from Goldman
Sachs stating, we estimate theSP 500 will deliver an
(01:04):
annualized nominal total returnof 3% during the next 10 years.
Goes on to add some more contextthere, but he says would be
great to see a video withperspective.
Even with the diversifiedportfolio, the idea of retiring
early at 48 is scary.
Thoughts on that, James?
SPEAKER_00 (01:23):
That's what a segue.
You open that up with uh Grant.
Like, where on earth is alreadygoing with this?
But okay, you came back to thereturns.
I do have thoughts on that.
That's any the sometimes we fallinto this trap of thinking that
financial planning is like itcan be boiled down to a science
and it can be boiled down to anengineering problem.
If you get the right inputs, youput them together the right way,
(01:44):
the outputs are gonna take careof themselves and you're gonna
be good.
And there's some areas where youhave more control over the
inputs and the outputs thanothers, but one of the areas
that you have very littlecontrol is the returns.
And it doesn't take a genius tounderstand that if you retire
and you have really, really poorreturns, your retirement might
look a whole lot different thanwhat you expect it would have.
(02:06):
And so um, this particularindividual's reference in a
study by Goldman Sachs.
Every major fund company, itseems like has done one of these
studies.
And I do have a few points to, Iguess, come up with this.
Number one, I've been hearingthis for years.
Year after year after year afteryear, low returns going forward,
low returns going forward, lowreturns going forward.
Everyone from Goldman Sachs toVanguard has said that.
(02:28):
Very well-respectedinstitutions.
This isn't me saying they don'tknow what they're talking about.
This isn't us saying we knowbetter than they do, but it is
us saying no one has any idea,is the first point I'll make to
this.
Is no one has any idea what thenext 10 years are going to look
like.
How on earth could we?
Look at all that's going on withAI, look what's all going on in
the market, how is that going tounfold?
(02:49):
I would be wary of relying tooheavily on one or even all of
these research papers or studiesthat try to predict that.
Number two, though, like thereis, I think, a lot of good that
can come from planning fromworst case scenario.
What would it look like had thathappened?
Um, what are you gonna be okayif you retire at 48 and if you
(03:11):
get suboptimal returns?
What do you think about there?
And I think that's a great,that's that is what you should
be doing with planning.
If your financial plan is basedupon you're gonna get the same
15-20% annual returns that theNASDAQ's been generating over
the last 10 plus years, you'reprobably in for a rude awakening
when you realize that this lastfive to 10 years, 15 years even,
(03:32):
has been wonderful.
And there'll probably be othertime periods in the future where
you get similar returns, butthat is in no way gonna be
something you can plan for everysingle year.
And so run projections of whatmight you be able to do if you
get normal market returns thatyou've gotten, you know, the SP
historically has generated about10% per year.
(03:53):
That's just what it's done.
Inflation's been about three.
So your real return's beensomewhere in the neighborhood of
seven.
Had you just invest in the S P500 over the last 100 years.
Run a projection like that justto see where you will end up.
But run a projection too of whatif your real return's 4%?
What if your real return is 1%?
And by real return, I mean yournominal return.
(04:16):
So when you look at yourinvestment statement and see I'm
up 4%, 5%, 6%, whatever it is,minus whatever inflation is.
Because if your nominal returnis eight, but inflation's 10
every year, just to use anextreme example, eight seems
like a good return until yourealize you actually losing 2%
per year every year toinflation.
So run those differentscenarios, stress test that.
(04:39):
I think that's what we'd like tolook at of don't just run a plan
of what happens if these inputsare right.
Run a plan of base case, here'sthe inputs I think will happen.
What if expenses are way higher?
What if Social Security getscut?
What if uh inflation is wayhigher?
What if returns are way lower?
What if tax rates go up?
(05:00):
What if you have medicalexpenses in excess of X?
What if you have a long-termcare event?
What if, what if, what if, and Ithink that's a big part of
planning is we don't know.
And it cannot be boiled down toa science.
But what we can do is adapt.
And I think that, you know, Ihad Bill Bangin, who's the
author of the original 4% rulewhite paper on the show a few
(05:22):
weeks back.
And people have heard of hisrule, the 4% rule.
And they think of it as thissense of, oh, 4% that goes for
me, that goes for Ari, that goesfor anyone who wants to retire.
4% is what you can take.
And no ifs ands buts about it.
That's just it.
Well, the reality, and he wasquick to point this out, that's
worst case scenario.
That's if you retired, if youwere the unluckiest retiree and
(05:44):
you retired right before you hada prolonged period of negative,
of really poor returns, muchlike this viewer saying.
What if you got that GoldmanSachs study environment?
What if you retired right in1973, 1974, where you had
horrible market returns and youhad horrible inflation at the
same time?
What if you retired right whenthe Great Depression hit?
(06:07):
So when he's saying 4% rule,what he's saying is what that's
what you could have taken evenunder these circumstances, even
under these worst-casescenarios, at least historically
speaking.
Now we don't know what thefuture is going to hold.
So things theoretically could beworse, but what we're trying to
do is we're trying to blockpredict what the future will be.
(06:28):
And there's just no way of doingthat.
So we do need to look at arange.
And if you run a range ofreturns, and if you look at some
of these lower returnenvironments and it leads to a
retirement that you're just notokay with, that begs the
question.
Do you retire at 48 or do youcontinue going another couple of
years to build in some margin ofsafety?
Do you retire at 48 and spendwhat you want to spend?
(06:50):
What's your backup plan ifreturns are low?
What's your backup plan if youneed to go back to work?
What's your backup plan ifthings don't go the way you want
them to go?
And that's really where thebeauty of planning is, not in
the predictions, but in thewhat-ifs and the what are we
going to do when an event likethis happens?
SPEAKER_01 (07:07):
Great points.
They remind me of a clientstory.
But before I tell the quickstory, I imagine all of you are
thinking one of two things.
Number one, you're thinking thegreatest fear that I have is I
retire early and run out ofmoney.
The second fear is you actuallyinvest so well, don't enjoy your
retirement to the fullest.
Look back being 85 years old,mad at James and mad at me,
(07:30):
going, Why didn't you guys tellme I should have spent more when
I was in a fine spot to do so?
And that balancing act is whatwe obviously help clients with.
So the story that I'll sharehere that I think directly
relates to your great pointsthere, James, is I had a client
who was really feeling down onthemselves.
And I remember talking to themsaying, Hey, why do you feel
down?
And they said, Well, this is thefirst year I'm not gonna max out
my 401k.
(07:51):
I said, Okay, tell me why.
And they said, Well, I lost myjob and so I could do it, but I
really would not be able to goout to eat.
And they'd already saved andinvested well.
But you could tell that nomatter what, they felt like they
were off.
They were not on track forretirement because it was their
first year where they weren'tmaxing out their 401k.
And I said, Can I give you somevery transparent advice?
(08:12):
And they're like, of course weneed it, expecting me to say,
you're gonna have to figure itout.
I don't care if you don't get togo out to eat, you gotta max
this thing out or you're notretiring.
And I said, it doesn't reallymatter to me as an advisor if
you save more.
They said, that's really weirdconsidering you're a financial
advisor.
Isn't that like what you tellpeople to do?
(08:32):
I said, well, think about itlike this.
If you have a million dollarsand you get a 10% rate of
return, that's significant.
I mean, that is legitimately$100,000 of value added.
What's the most you can put inyour 401k?
And they said, well, I don'tknow, 30,000 or something like
that.
I said, well, you see how wecannot outsave good investing?
They said, yeah, but what if Idon't get 10%?
(08:53):
I go, let's do it with 7% or 6%or 5%.
And they finally, I could see,put their shoulders down a
little bit, going, okay, allthat work I was doing that felt
like autopilot, I'm seeing thebenefits of now.
And their child was on thatmeeting.
And their child, I could see,was focusing on returns.
And I went to the client and Isaid, Hey, do you mind if I
(09:15):
speak very transparently to yourchild right now?
And they said, Of course.
And I said, I need you to shutup.
And they're like, oh my gosh,how dare you ever talk to me
that way?
The parent and I were cool withit, James.
So the parent goes, Why did yousay that?
I go, Well, they're justfocusing on Bitcoin and getting
max returns, but they have ahundred dollars in their 401k.
10% on a hundred dollars is 10bucks.
(09:37):
It's not making a bigdifference.
They need to max out their 401k,not you, because you're in a
different stage of life.
Now, I said it much nicer thanthat, and we were all cool, but
it was giving this client a wow.
So, yes, I need to plan.
I need to run what if scenarios,but I have invested well.
And this idea of being kind offorced in my head to max out my
401k maybe isn't the rightanswer.
(09:58):
That was surprising for thefirst time.
SPEAKER_00 (10:00):
Yeah, it's a it's a good point.
There's there's a coupledifferent lessons here.
One is almost like what'scarrying the heavy lifting?
Is it contributions or is itinvestment returns?
And at different phases of yourinvest in lifetime, that's gonna
be different.
Early on, contributions matterway more than returns.
Later on, contributions aren'tgonna do as much of the heavy
(10:21):
lifting as returns.
So that's definitely a point.
Here, so I'm gonna go back towhat this listener mentioned
real quick.
And I'm just gonna give younumbers and tell me how you're
feeling.
Okay, all right, you're about toretire.
So put yourself in thisindividual's shoes.
48 years old, you're about toretire, and you know for certain
that next year the market'sgonna be down eight and a half
percent.
Okay, so so you how how are youfeeling so far?
(10:44):
One word.
Good, bad, fine.
Scared.
Scared.
Okay, cool.
That's one year.
The year after, you're gonna bedown 25%.
How are you feeling now?
Trying.
The year after, you're gonna bedown 43%.
And keep in mind, alright,before you give me your one-word
answer, how are you feeling?
These are consecutive returns.
(11:04):
So a negative on a negative on anegative, how are you doing
after those three consecutiveyears of returns?
Work.
Should I go back to work?
And then finally, year four,you're down eight percent.
How are you doing right nowemotionally?
Destroyed.
Destroyed.
Those aren't arbitrary returns,those were the four consecutive
(11:26):
returns had you retired in 1929,right before the Great
Depression hit.
That is what the US market did.
Those are devastating returns.
Those are the returns that whenpeople talk about that when Bill
Bangin writes his paper of youcan spend a certain amount, it's
not you can spend a certainamount only if you get 10% per
(11:51):
year average in the stockmarket, or only if you get 5%
per year average return in thestock market.
He is taking these horribletimes in the market, these
really, really, really bad timesin the market and saying, what
if you retired and that was yourexperience?
Could you have followed this?
Could you have spent this amountand still had your money last
(12:13):
for 30 plus years intoretirement?
So when we go back to this,Great, I can't think of a much
worse time to retire than theGreat Depression.
When you think about how muchdevastation that caused, when
you think about the fear thatthat caused, when you think
about how long it took to breakeven.
By the way, there are somestatistics on that that are a
little bit misleading.
(12:33):
When you look at how long did itactually take for the market to
break even, it was about 14years.
You know, you hear some peopletalk about it as 25 plus years
until the market actually fullyrecovered.
That's if you didn't reinvestdividends, that's if you did a
few different things.
There's also horrible deflationduring that time.
So the actual break-even timewas about nine years when you
look at your inflation-adjustedreturns of what you were
(12:54):
getting.
But still hard to imagine aworse scenario than that.
And so as I bring that back tothese studies today, what if
this Goldman Sachs study isright?
What if these vanguard studiesare right?
What if any of these studies areright?
That's not necessarily changingwhat our feedback to clients is
sometimes that you can be in aposition to retire if you're
(13:15):
invested the right way and havea reasonably high chance of
success.
Then the final thing that I'llsay to that is all these studies
are just focused on SP 500.
They're just focused on U.S.
returns.
If you look at the returns ofthe US stock market over the
last 15 years, they've beenastronomically high.
At some point, there is going tobe what you call a reversion to
(13:35):
the mean.
You just cannot sustain thishigh of returns forever.
We saw this in 2000 to 2010.
The returns of the SP 500 werenegative.
If you looked at January 1st of2000 to January 1st of 2010, you
lost money if you were allinvested in the SP 500.
So people will hear that andsay, I don't want to retire in a
(13:56):
time period like that.
Well, of course, nobody does.
But if you had the right mix ofinvestments, if you had small
company investments,international investments,
emerging markets investments,small company investments, like
all these things made money,which goes back to the point of
diversification always beingimportant, but especially as
you're approaching and goinginto retirement.
(14:17):
If you're listening to this andyou're that investor that has
all of your money in QQQ and VTIand the SP 500 and maybe Apple
and Nvidia and Amazon, thesethings have performed so well.
I'm not going to give youinvestment advice, but I would
be very cautious of retiringwith all of your money in just
those types of investmentsbecause what has gone up can
(14:37):
come down, will come down inmany cases.
And diversification seems likesuch a boring thing over those
last 15 plus years when all youhad to do is choose US large
tech stocks and you did insanelywell.
If you're positive that's goingto last forever for the next 40
plus years of your retirement,I'm not sure I would stay
invested that way as you go intoretirement.
(14:59):
So you cannot overstate theimportance enough of being
diversified, of having the rightinvestment strategy going into
retirement.
It's always important, butespecially important as you
approach those retirement years.
SPEAKER_01 (15:10):
Very well said.
Thank you as always forlistening.
SPEAKER_00 (15:13):
James, anything you want to add on to that?
No, I think that's it.
We don't know where the market'sgoing.
We don't know what returns aregoing to be.
But if you plan, if you'redynamic, if you're continuing to
monitor this along the way, Idon't want to say no reason to
fear because we should always becautious.
But a well-designed plan shouldbe able to allay a lot of those
fears.
SPEAKER_01 (15:33):
Love it.
If you are listening right nowon the podcast app, these
episodes are going to continueto go out bi-weekly.
And then if you would like tosee us actually interact, those
are on YouTube on our RootFinancial YouTube channel.
James has his own channel, JamesCannol, as well as mine, Ari
Taubleb, on YouTube as well.
Thank you guys as always fortuning in.
And please do drop commentsbelow of what you'd like to see
(15:56):
us address in a future episode.
James, just before we started recording, we were
talking about family.
And I'm recently married andthere's talk of children.
Who knows exactly when?
You have two children at themoment.
I imagine a lot of peoplelistening right now, there might
be some grandchildren on theway, but that's maybe not the
only thing you're thinkingabout.
If you are thinking about anearly retirement or retirement
(00:20):
at any time, there's probably asmall part of you going, well,
what if my returns don't do whatI expect them to do?
How will that change myretirement?
And the last thing you want isfor your returns to not maybe do
what you hope.
And now your grandchildren,maybe you can't support them to
the degree you want.
Or worst case, you have to goback to work, which we certainly
want to avoid.
So today's topic has actuallybeen brought by a comment on
(00:43):
YouTube.
So for those of you who areleaving comments on YouTube,
thank you, because that is howwe actually decide what we talk
about today.
And I'm gonna go ahead and readthat comment now.
So this comes from UT Savrati,who says, What's your
perspective on the recentstrategy paper from Goldman
Sachs stating, we estimate theSP 500 will deliver an
(01:04):
annualized nominal total returnof 3% during the next 10 years.
Goes on to add some more contextthere, but he says would be
great to see a video withperspective.
Even with the diversifiedportfolio, the idea of retiring
early at 48 is scary.
Thoughts on that, James?
SPEAKER_00 (01:23):
That's what a segue.
You open that up with uh Grant.
Like, where on earth is alreadygoing with this?
But okay, you came back to thereturns.
I do have thoughts on that.
That's any the sometimes we fallinto this trap of thinking that
financial planning is like itcan be boiled down to a science
and it can be boiled down to anengineering problem.
If you get the right inputs, youput them together the right way,
(01:44):
the outputs are gonna take careof themselves and you're gonna
be good.
And there's some areas where youhave more control over the
inputs and the outputs thanothers, but one of the areas
that you have very littlecontrol is the returns.
And it doesn't take a genius tounderstand that if you retire
and you have really, really poorreturns, your retirement might
look a whole lot different thanwhat you expect it would have.
(02:06):
And so um, this particularindividual's reference in a
study by Goldman Sachs.
Every major fund company, itseems like has done one of these
studies.
And I do have a few points to, Iguess, come up with this.
Number one, I've been hearingthis for years.
Year after year after year afteryear, low returns going forward,
low returns going forward, lowreturns going forward.
Everyone from Goldman Sachs toVanguard has said that.
(02:28):
Very well-respectedinstitutions.
This isn't me saying they don'tknow what they're talking about.
This isn't us saying we knowbetter than they do, but it is
us saying no one has any idea,is the first point I'll make to
this.
Is no one has any idea what thenext 10 years are going to look
like.
How on earth could we?
Look at all that's going on withAI, look what's all going on in
the market, how is that going tounfold?
(02:49):
I would be wary of relying tooheavily on one or even all of
these research papers or studiesthat try to predict that.
Number two, though, like thereis, I think, a lot of good that
can come from planning fromworst case scenario.
What would it look like had thathappened?
Um, what are you gonna be okayif you retire at 48 and if you
(03:11):
get suboptimal returns?
What do you think about there?
And I think that's a great,that's that is what you should
be doing with planning.
If your financial plan is basedupon you're gonna get the same
15-20% annual returns that theNASDAQ's been generating over
the last 10 plus years, you'reprobably in for a rude awakening
when you realize that this lastfive to 10 years, 15 years even,
(03:32):
has been wonderful.
And there'll probably be othertime periods in the future where
you get similar returns, butthat is in no way gonna be
something you can plan for everysingle year.
And so run projections of whatmight you be able to do if you
get normal market returns thatyou've gotten, you know, the SP
historically has generated about10% per year.
(03:53):
That's just what it's done.
Inflation's been about three.
So your real return's beensomewhere in the neighborhood of
seven.
Had you just invest in the S P500 over the last 100 years.
Run a projection like that justto see where you will end up.
But run a projection too of whatif your real return's 4%?
What if your real return is 1%?
And by real return, I mean yournominal return.
(04:16):
So when you look at yourinvestment statement and see I'm
up 4%, 5%, 6%, whatever it is,minus whatever inflation is.
Because if your nominal returnis eight, but inflation's 10
every year, just to use anextreme example, eight seems
like a good return until yourealize you actually losing 2%
per year every year toinflation.
So run those differentscenarios, stress test that.
(04:39):
I think that's what we'd like tolook at of don't just run a plan
of what happens if these inputsare right.
Run a plan of base case, here'sthe inputs I think will happen.
What if expenses are way higher?
What if Social Security getscut?
What if uh inflation is wayhigher?
What if returns are way lower?
What if tax rates go up?
(05:00):
What if you have medicalexpenses in excess of X?
What if you have a long-termcare event?
What if, what if, what if, and Ithink that's a big part of
planning is we don't know.
And it cannot be boiled down toa science.
But what we can do is adapt.
And I think that, you know, Ihad Bill Bangin, who's the
author of the original 4% rulewhite paper on the show a few
(05:22):
weeks back.
And people have heard of hisrule, the 4% rule.
And they think of it as thissense of, oh, 4% that goes for
me, that goes for Ari, that goesfor anyone who wants to retire.
4% is what you can take.
And no ifs ands buts about it.
That's just it.
Well, the reality, and he wasquick to point this out, that's
worst case scenario.
That's if you retired, if youwere the unluckiest retiree and
(05:44):
you retired right before you hada prolonged period of negative,
of really poor returns, muchlike this viewer saying.
What if you got that GoldmanSachs study environment?
What if you retired right in1973, 1974, where you had
horrible market returns and youhad horrible inflation at the
same time?
What if you retired right whenthe Great Depression hit?
(06:07):
So when he's saying 4% rule,what he's saying is what that's
what you could have taken evenunder these circumstances, even
under these worst-casescenarios, at least historically
speaking.
Now we don't know what thefuture is going to hold.
So things theoretically could beworse, but what we're trying to
do is we're trying to blockpredict what the future will be.
(06:28):
And there's just no way of doingthat.
So we do need to look at arange.
And if you run a range ofreturns, and if you look at some
of these lower returnenvironments and it leads to a
retirement that you're just notokay with, that begs the
question.
Do you retire at 48 or do youcontinue going another couple of
years to build in some margin ofsafety?
Do you retire at 48 and spendwhat you want to spend?
(06:50):
What's your backup plan ifreturns are low?
What's your backup plan if youneed to go back to work?
What's your backup plan ifthings don't go the way you want
them to go?
And that's really where thebeauty of planning is, not in
the predictions, but in thewhat-ifs and the what are we
going to do when an event likethis happens?
SPEAKER_01 (07:07):
Great points.
They remind me of a clientstory.
But before I tell the quickstory, I imagine all of you are
thinking one of two things.
Number one, you're thinking thegreatest fear that I have is I
retire early and run out ofmoney.
The second fear is you actuallyinvest so well, don't enjoy your
retirement to the fullest.
Look back being 85 years old,mad at James and mad at me,
(07:30):
going, Why didn't you guys tellme I should have spent more when
I was in a fine spot to do so?
And that balancing act is whatwe obviously help clients with.
So the story that I'll sharehere that I think directly
relates to your great pointsthere, James, is I had a client
who was really feeling down onthemselves.
And I remember talking to themsaying, Hey, why do you feel
down?
And they said, Well, this is thefirst year I'm not gonna max out
my 401k.
(07:51):
I said, Okay, tell me why.
And they said, Well, I lost myjob and so I could do it, but I
really would not be able to goout to eat.
And they'd already saved andinvested well.
But you could tell that nomatter what, they felt like they
were off.
They were not on track forretirement because it was their
first year where they weren'tmaxing out their 401k.
And I said, Can I give you somevery transparent advice?
(08:12):
And they're like, of course weneed it, expecting me to say,
you're gonna have to figure itout.
I don't care if you don't get togo out to eat, you gotta max
this thing out or you're notretiring.
And I said, it doesn't reallymatter to me as an advisor if
you save more.
They said, that's really weirdconsidering you're a financial
advisor.
Isn't that like what you tellpeople to do?
(08:32):
I said, well, think about itlike this.
If you have a million dollarsand you get a 10% rate of
return, that's significant.
I mean, that is legitimately$100,000 of value added.
What's the most you can put inyour 401k?
And they said, well, I don'tknow, 30,000 or something like
that.
I said, well, you see how wecannot outsave good investing?
They said, yeah, but what if Idon't get 10%?
(08:53):
I go, let's do it with 7% or 6%or 5%.
And they finally, I could see,put their shoulders down a
little bit, going, okay, allthat work I was doing that felt
like autopilot, I'm seeing thebenefits of now.
And their child was on thatmeeting.
And their child, I could see,was focusing on returns.
And I went to the client and Isaid, Hey, do you mind if I
(09:15):
speak very transparently to yourchild right now?
And they said, Of course.
And I said, I need you to shutup.
And they're like, oh my gosh,how dare you ever talk to me
that way?
The parent and I were cool withit, James.
So the parent goes, Why did yousay that?
I go, Well, they're justfocusing on Bitcoin and getting
max returns, but they have ahundred dollars in their 401k.
10% on a hundred dollars is 10bucks.
(09:37):
It's not making a bigdifference.
They need to max out their 401k,not you, because you're in a
different stage of life.
Now, I said it much nicer thanthat, and we were all cool, but
it was giving this client a wow.
So, yes, I need to plan.
I need to run what if scenarios,but I have invested well.
And this idea of being kind offorced in my head to max out my
401k maybe isn't the rightanswer.
(09:58):
That was surprising for thefirst time.
SPEAKER_00 (10:00):
Yeah, it's a it's a good point.
There's there's a coupledifferent lessons here.
One is almost like what'scarrying the heavy lifting?
Is it contributions or is itinvestment returns?
And at different phases of yourinvest in lifetime, that's gonna
be different.
Early on, contributions matterway more than returns.
Later on, contributions aren'tgonna do as much of the heavy
(10:21):
lifting as returns.
So that's definitely a point.
Here, so I'm gonna go back towhat this listener mentioned
real quick.
And I'm just gonna give younumbers and tell me how you're
feeling.
Okay, all right, you're about toretire.
So put yourself in thisindividual's shoes.
48 years old, you're about toretire, and you know for certain
that next year the market'sgonna be down eight and a half
percent.
Okay, so so you how how are youfeeling so far?
(10:44):
One word.
Good, bad, fine.
Scared.
Scared.
Okay, cool.
That's one year.
The year after, you're gonna bedown 25%.
How are you feeling now?
Trying.
The year after, you're gonna bedown 43%.
And keep in mind, alright,before you give me your one-word
answer, how are you feeling?
These are consecutive returns.
(11:04):
So a negative on a negative on anegative, how are you doing
after those three consecutiveyears of returns?
Work.
Should I go back to work?
And then finally, year four,you're down eight percent.
How are you doing right nowemotionally?
Destroyed.
Destroyed.
Those aren't arbitrary returns,those were the four consecutive
(11:26):
returns had you retired in 1929,right before the Great
Depression hit.
That is what the US market did.
Those are devastating returns.
Those are the returns that whenpeople talk about that when Bill
Bangin writes his paper of youcan spend a certain amount, it's
not you can spend a certainamount only if you get 10% per
(11:51):
year average in the stockmarket, or only if you get 5%
per year average return in thestock market.
He is taking these horribletimes in the market, these
really, really, really bad timesin the market and saying, what
if you retired and that was yourexperience?
Could you have followed this?
Could you have spent this amountand still had your money last
(12:13):
for 30 plus years intoretirement?
So when we go back to this,Great, I can't think of a much
worse time to retire than theGreat Depression.
When you think about how muchdevastation that caused, when
you think about the fear thatthat caused, when you think
about how long it took to breakeven.
By the way, there are somestatistics on that that are a
little bit misleading.
(12:33):
When you look at how long did itactually take for the market to
break even, it was about 14years.
You know, you hear some peopletalk about it as 25 plus years
until the market actually fullyrecovered.
That's if you didn't reinvestdividends, that's if you did a
few different things.
There's also horrible deflationduring that time.
So the actual break-even timewas about nine years when you
look at your inflation-adjustedreturns of what you were
(12:54):
getting.
But still hard to imagine aworse scenario than that.
And so as I bring that back tothese studies today, what if
this Goldman Sachs study isright?
What if these vanguard studiesare right?
What if any of these studies areright?
That's not necessarily changingwhat our feedback to clients is
sometimes that you can be in aposition to retire if you're
(13:15):
invested the right way and havea reasonably high chance of
success.
Then the final thing that I'llsay to that is all these studies
are just focused on SP 500.
They're just focused on U.S.
returns.
If you look at the returns ofthe US stock market over the
last 15 years, they've beenastronomically high.
At some point, there is going tobe what you call a reversion to
(13:35):
the mean.
You just cannot sustain thishigh of returns forever.
We saw this in 2000 to 2010.
The returns of the SP 500 werenegative.
If you looked at January 1st of2000 to January 1st of 2010, you
lost money if you were allinvested in the SP 500.
So people will hear that andsay, I don't want to retire in a
(13:56):
time period like that.
Well, of course, nobody does.
But if you had the right mix ofinvestments, if you had small
company investments,international investments,
emerging markets investments,small company investments, like
all these things made money,which goes back to the point of
diversification always beingimportant, but especially as
you're approaching and goinginto retirement.
(14:17):
If you're listening to this andyou're that investor that has
all of your money in QQQ and VTIand the SP 500 and maybe Apple
and Nvidia and Amazon, thesethings have performed so well.
I'm not going to give youinvestment advice, but I would
be very cautious of retiringwith all of your money in just
those types of investmentsbecause what has gone up can
(14:37):
come down, will come down inmany cases.
And diversification seems likesuch a boring thing over those
last 15 plus years when all youhad to do is choose US large
tech stocks and you did insanelywell.
If you're positive that's goingto last forever for the next 40
plus years of your retirement,I'm not sure I would stay
invested that way as you go intoretirement.
(14:59):
So you cannot overstate theimportance enough of being
diversified, of having the rightinvestment strategy going into
retirement.
It's always important, butespecially important as you
approach those retirement years.
SPEAKER_01 (15:10):
Very well said.
Thank you as always forlistening.
SPEAKER_00 (15:13):
James, anything you want to add on to that?
No, I think that's it.
We don't know where the market'sgoing.
We don't know what returns aregoing to be.
But if you plan, if you'redynamic, if you're continuing to
monitor this along the way, Idon't want to say no reason to
fear because we should always becautious.
But a well-designed plan shouldbe able to allay a lot of those
fears.
SPEAKER_01 (15:33):
Love it.
If you are listening right nowon the podcast app, these
episodes are going to continueto go out bi-weekly.
And then if you would like tosee us actually interact, those
are on YouTube on our RootFinancial YouTube channel.
James has his own channel, JamesCannol, as well as mine, Ari
Taubleb, on YouTube as well.
Thank you guys as always fortuning in.
And please do drop commentsbelow of what you'd like to see
(15:56):
us address in a future episode.
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