by Shelley Seagler
Deciding how you will use your retirement portfolio to create sustainable income when you are no longer willing or able to work is one the most important financial decisions you’ll ever make. But it is certainly not the easiest. At Snider Advisors, we are clearly biased, but we believe the Snider Investment Method® addresses the need for producing retirement income like no other investment approach, to date, has.
Chances are, if you’re not using our strategy, you’ve probably wondered, “Is the Snider Method right for me?” The best way to answer that question is to attend one of our free courses. The goal of these courses is to give you enough insight and information about who we are and what we do that you can make the right decision for you.
In addition to our free courses, the questions below are designed to help you assess where you are and whether or not the Snider Method may be the right tool to get you where you want to go.
#1 – Have you calculated the required rate of return you will need to support the lifestyle you want in retirement? Keep in mind recent actuarial charts indicate that you may be in retirement for more than thirty years.
If you are like the majority of Americans, the only way to pay your bills, pay Uncle Sam, and keep up with inflation is to have low double digit returns. The target yield of the Snider Investment Method is 1% per month or 12% annually. A 12% yield does not come without trade-offs in risk. However, the Snider Method is strategically engineered to optimize those trade-offs so that you are taking the calculated risks you can most afford to take in exchange for rewards that give you the biggest bang for your buck.
To learn more, read our Special Report, How to Not Just Survive, but Thrive, in Turbulent Financial Markets.
#2 – What is the maximum withdrawal rate your current portfolio can sustain? How much of the expected return in your current portfolio will come in the form of cash flow? Will you have to sell off assets to raise cash?
Traditional investment approaches that involve holding stocks, bonds, and mutual funds are an iffy proposition because of the problem the sequencing of returns can create; this is why you are limited to only a four to five percent withdrawal rate. The sequencing of return problem is caused by reverse compounding, which occurs when you experience permanent losses of capital.
Traditional portfolios require you to liquidate assets periodically to raise the cash needed to pay your day-to-day living expenses. Because of the cyclical nature of markets, these liquidations will often occur at a loss, leading to reverse compounding. Reverse compounding greatly increases the risk you will outlive your money.
The Snider Method is a cash-flow approach to investing for retirement. By focusing primarily on cash flow, rather than capital appreciation, the Snider Method seeks to avoid the periodic liquidation of assets and avoid the reverse compounding problem that can plague traditional retirement portfolios.
To the extent the Snider Method is successful in avoiding permanent losses of capital and producing a higher 12% yield, you may be able to withdraw significantly higher amounts from the portfolio in retirement than with a traditional retirement portfolio.
Our Special Report, The 4% Withdrawal Fallacy explains the sequencing of returns problem as well as a number of other problems with the traditional four percent withdrawal rate.
#3 – If the market were to decline 50 percent from today’s levels, would that be a crisis for you financially? Would it delay or destroy any of your financial goals?
Bear markets, which can be swift and severe, and have occurred historically about once every five years. The traditional approach to dealing with bear markets is to either try to time them, pick stocks that will outperform the market, or hold a diversified portfolio. Yet empirical studies show that none of these approaches work. You can’t time the market; you can’t consistently pick stocks that outperform; and assets become more highly correlated in times of crisis.
While certainly not immune from bear markets, the target yield of the Snider Method is 1% of the total amount invested rather than 1% of the current market value. Let’s look at an example. Imagine your monthly expenses are $8,000 and you have $1 million invested in the Snider Method. The target yield of your Snider Method account is 1% of $1 million or $10,000 per month. Over the next year, the value of the market, and therefore of your Snider Method account, declines by 30%. The target remains $10,000 per month (1% of $1 million), not $7,000 per month (1% of the $700,000 market value).
It is important to note, however, 1% is just a target. It is the nature of a 12% target that actual yields will vary – at times higher and at times lower. There is no such thing as a guaranteed 12%. We wish there were!
#4 – Do you know for sure that your portfolio is invested in a way that matches up to your objectives, time horizon, and tolerance for risk? Is your advisor buying and selling assets that are most appropriate for you – or are they buying what pays them the highest commission?
Dick Cavett once said, “Most people treat their finances like they do their dentistry; they hope the guy handling it knows what he is doing.” At Snider Advisors, we believe the person most qualified to make decisions about your money is you. You may have been led to think that understanding your portfolio takes a lot of time or requires a great deal of experience and market knowledge – but it is just not true.
There are two ways to put the Snider Method to work in your portfolio. One is to attend our Snider Method course and do it yourself. The other is to attend our course and then have us do it for you. Either way, you know exactly what is happening with your money and more importantly… why.
To be clear, you don’t have to take the course for us to manage your money. But as a rule, we believe you should be an active partner in the process and understand exactly what is going on. Additionally, we offer a rebate against asset management fees for clients who attend the Snider Method workshop.
#5 – How much are you paying in investment fees? If you were able to cut those fees, do you know how much more money that would put in your pocket over the next twenty years?
It’s been estimated that approximately 75 percent of Americans do not have enough money to retire. Additionally, the vast majority of Americans underperform the market year in and year out. Moreover, because of longevity risk, there is always the possibility the enough could become not enough at some point in the future. Why would you throw away money by paying fees for under-performance?
Fees in a typical investment portfolio take many forms, most of which are hidden. You don’t even realize you are paying them, but you most definitely are. You’re also shelling out money for brokerage commissions, mutual fund management fees, front or back-end loads, 12(b)-1 fees, market impact costs, and advisor fees.
When you purchase products such as an annuity, the salesperson gets a nice slice of your money as a commission, right off the top. And the mutual funds within a variable annuity usually have higher expenses than the same mutual fund outside an annuity.
Every dollar you pay in fees is a dollar less you have to grow, compound, and work for you. In fact, like many Americans, you may fret over the taxes you pay on your investment income, but the truth is you will pay far more in fees than you ever will in taxes.
Relative to a typical investment portfolio, the fees in a Snider Method portfolio are low and are absolutely transparent. You know to the penny how much you are paying. Moreover, all of our performance numbers are net of fees. If you are paying too much in fees or do not know how much you are spending each year, and you’re ready to make more of your money work for you, the Snider Method may be right for you.
#6 – Do you get emotional about your investments and/or find yourself constantly buying high and selling low? Do you just wish you had a formula that you could stick to?
According to DALBAR’S Quantitative Analysis of Investor Behavior, the average investor typically underperforms his investment by half each year. This is because fear and greed cause you to do the exact wrong thing at the exact wrong time. You typically sell when you should buy and buy when you should sell. See my previous article, “The Market Recovered. Did You?” to learn more.
Your success has as much to do with your behavior as it does with your investments. Behavioral finance is very clear on how to close the gap between investment return and investor return. The answer is rule-based, systematic investing.
The Snider Method is a step-by-step process, like a recipe, designed to produce replicable results again and again. There is no guesswork – no place where you wonder what you should do. The rules tell you what to do in every possible situation. This lack of discretion is specifically designed to take the emotion out of the investment process.
If you’d like to learn more about whether the Snider Method is right for you, attend our next free course, Snider Method Introduction Course, or contact us at 888-6SNIDER or firstname.lastname@example.org.