Plan Your Prosperity: The Only Retirement Guide You'll Ever Need, Starting Now--Whether You're 22, 52 or 82

Chapter 5

What’s in a Return?

Once you’ve got your timeline nailed down, another key consideration for selecting an appropriate benchmark is your return expectations. This links directly to your growth goal—but also your cash flow goal.

Many readers may say, “Sure, I want growth. Who doesn’t?” But they may underestimate how much growth is appropriate for their goals. They may forget to account for inflation’s impact. Or they may fail to plan for later unexpected events or underestimate how much cash flow they’ll need. As in determining the time horizon, errors here are much more often made by assuming the need for too little growth, not too much.

Investors may also not understand what level of growth is reasonably possible. Or what level of volatility should be expected for that amount of growth. Misunderstanding what amount of growth is reasonable to expect and the volatility risk involved can also lead to errors. (The worst of which, in my view, is falling prey to a scam. Sometimes, the return of your money is more important than the return on your money.)

Then, some readers may think they have only modest growth goals. All they need is a small amount (or, heck, a large amount) of cash flow from their portfolio. They care not one whit about whether the portfolio value grows, shrinks or depletes. The last check can bounce! However, as discussed in Chapter 2, if you want cash flow—even if you don’t want to grow your portfolio a bunch—that often necessitates some growth to stretch ...