Invest More Effectively for a Better Retirement

Most experts incorrectly assume that weak performance is the only possibility.

The investment club looked dour.

I had been invited to join a panel of experts offering tips on how to retire well when starting late. The other experts were two certified financial planners and a representative from one of the major brokerage firms.

Yours truly played his usual role as maverick—not a CFP, not traditionally trained, but a bestselling financial author who came to the business specifically because CFPs and other traditionalists had failed to help family members achieve their financial goals. The reason? Timidity and an unquestioning loyalty to tenets unsupported by market behavior. Spokespeople from that tradition flanked me at the head table.

In attendance were investors in their 40s and 50s who wrote on an application form that that they were well off their retirement targets. “I’m ten years behind where I should be,” wrote one in his early fifties.

And where should he have been? According to the industry, 50-year-old Americans should have saved six times their salary. This man claiming to be ten years behind makes $85,000 per year, but his retirement account is nowhere close to six times that, which is $510,000. When pressed by one of the CFPs for his current balance, the man sheepishly said “almost $300,000.” From the look on his face, I guessed more like $250,000. He’s only halfway there.

A mixture of groans and grumbles of “I hear you” went through the crowd. Then it was time for advice from the panel. All of it I had heard before, and I’ll bet you have too. Distilled, here’s what they told this man in his early fifties only halfway to his retirement target:

• Save more. Make a budget, both to help see where you can find more to contribute toward retirement, and to understand how much spending money you’ll need after you retire. The man’s face fell when he heard this, expressing without words, Do you really think I hadn’t thought of that?
  

• Pay off credit cards and other high-interest debt, but don’t forget to keep an emergency fund of six months of living expenses.
  

• Add up all retirement accounts. Make sure you’re not missing any, like a 401(k) you rolled over earlier in your career. This time the man spoke out loud. “I’m aware of all my retirement accounts. All one of them.”
  

• The brokerage representative suggested using her firm’s retirement calculator to work backwards from the retirement savings goal to see how much to save.
  

• Keep a diversified portfolio and expect to grow it at about 6% to 10% per year.
  

Then it was my turn:

“All of this is guaranteed to get nobody fired, straight out of the textbook, available at the top of online search results.

“It’s fine except for one thing: That diversified portfolio is sure to lose to the stock market. In your situation, boldness is better. I’d ignore these tired diversification guidelines and run an aggressive investing plan. I would not hope for the best, I would run at my goal and seize it. How about that for a change? How about covering some real ground in the stock market?”

“Sounds risky already,” said one of the CFPs.

“Of course you would say so. Your background has taught you that a 60/40 stock/bond portfolio is risky enough, and that ‘bold’ equals a 65% stock allocation. Again, guaranteed to lose to the market. So who’s really taking more risk? The one who goes for it and improves the odds of achieving the goal, or the one who resigns himself to losing to the market and missing the goal?”

“And I suppose you have just the plan this man needs.”

“I do,” I said, loudly and proudly, and proceeded to explain it.

My 9Sig growth plan has achieved a compound annual growth rate of not 6% or 10% over the past 7.5 years since its inception on 1/12/17 to last Friday, but 37.2%. I know, it seems too good to be true, but it is true and what makes it even more remarkable is that the plan uses only two funds: a 3x leveraged stock fund and a general bond fund.

“A lucky time frame,” huffed the CFP.

I replied that I wouldn’t call a time frame “lucky” when it included the tech wreck of 2018, the covid crash of 2020, and the rate-panic bear market of 2022.

So, what’s the secret? Market timing? No, that doesn’t work. What I run is a quarterly system of rules-based price reaction, no guesswork in sight.

The plan’s base reset allocation is the aforementioned 60/40 stock/bond, but it deviates from there almost immediately and spends most of its time far afield of that, sometimes reaching a nearly 100% allocation to stocks. It adjusts its allocation by setting a quarterly growth target for the stock side. If its stock balance comes in above the growth target, it sells the surplus and puts it into the bond fund. If its stock balance comes in below the growth target, the plan uses money from the bond fund to buy the stock side up to the growth target.

This process automates buying low and selling high, and the quarterly schedule offers the market plenty of time to fluctuate between signals. The quarterly pace prolongs buying power in a downturn, for example, and exits long upswings gradually. It does not achieve perfect timing—nothing can—but does a very good job, and eliminates stress from uncertainty. Each quarter, math alone drives the orders and the system could not care less what headlines or forecasts drove prices up or down. All sensationalism can be reduced to mere price pressure, and this Signal approach looks at the net result of price pressures in the quarter and reacts accordingly.

That’s how my subscribers grow their money during their working years.

To this man in his early fifties, I suggested we compare the difference between 8% per year and 18.6% per year—half the performance achieved by 9Sig over the past 7.5 years.

First, his balance at 8% annual growth:

Growth of $250,000
at 8% per year ($)
– – – – – – – – – – – – – – –
367,332 in 5 years
539,731 in 10 years
793,042 in 15 years

Next, his balance at 18.6% annual growth:

Growth of $250,000
at 18.6% per year ($)
– – – – – – – – – – – – – – –
586,629 in 5 years
1,376,534 in 10 years
3,230,058 in 15 years

Pretty convincing, and remember that the real-life results of 9Sig have been twice the 18.6% annual growth used in the above example.

“But what about retirement itself?” the man wondered. Could this same approach work during retirement?

It could, and I offer guidelines for reducing the stock allocation ahead of and into retirement, but three years ago I researched and devised a plan specifically for retirement, called Income Sig.

Here, the other CFP interrupted. “Retirement is harder than it’s ever been. As interest rates rose in 2022, bonds and stocks fell. Now, the money market offers a decent 5% yield, but that’s scheduled to begin falling next month. It’s just darned hard to find yield.”

“That’s not new,” I replied. “Except for the late 1970s and early 1980s, yields have never been high enough to provide meaningful retirement income.”

“What then, dividend growth stocks? Too risky for many retirees and, still, not enough yield.”

“I agree, which is why I abandoned that traditional advice. If you know that it doesn’t work, why are you still recommending it and saying in the same breath that it’s harder than it’s ever been?” No reply. “You’re right about that, but it’s puzzling that the industry has not bothered to think up a different approach. I did.”

Income Sig does not rely on bond yields or dividend growth stocks for its performance. The CFP is right that such a traditional allocation is a dud. So forget about it. Income Sig uses just three funds: a covered-call fund, a 3x leveraged stock fund, and a general bond fund, in a base allocation of 40/30/30. Like 9Sig, it checks in only quarterly. Unlike 9Sig, it runs a rote rebalance rather than seeking a growth target. This means that it resets to that 40/30/30 each quarter.

Now, here’s where it gets creative on the income front.

Instead of depending on only the yields from its covered-call fund and bond fund, it skims part of each quarterly surplus from the stock fund as income, and then rebalances to the 40/30/30 mix. Why it never occurred to the industry that stock-market surpluses could count as income is beyond me, but it didn’t. This plan moves its income into another covered-call fund in a repository account, from which the investor makes withdrawals for life expenses.

Income Sig debuted in January 2022, the beginning of a bear market. It declined along with everything else in the Fed rate-panic crash of 2022, but paid steady monthly distributions the whole way, thanks to yield from its funds. It took advantage of the plan’s crash rule to boost its allocation to its stock fund, and held onto that through 7/1/24, when it harvested a massive quarterly surplus that had built up during the holding period and moved a portion of it into its repository account. All of this is rules-based, not subject to judgment or emotion, and plays out on the predetermined quarterly schedule.

Despite the bear market, the plan is back above its starting balance of $1 million, has delivered $29,659 in distributions this year, and provided a monthly paycheck to the investor from the repository account of about $2,500. The amount differs slightly each month because the plan sells whole share amounts. This year’s $2,500 amount was determined using figures from the Employee Benefit and Retirement Institute (EBRI) for typical retirement spending, and by taking into account typical Social Security assistance. The $2,500 is additional income, not the whole story.

That’s how you catch up for retirement.

You ignore traditional advice, put market reality to work, and run a bold plan offering high odds of achieving your goals.

This business is not as complicated as advisors want you to believe. They make money when you think finances are too hard to manage on your own. You make money when you run a sensible plan based on reality rather than textbooks that long ago went irrelevant. My books and newsletter cost far less than advisor fees, work far better than advisor advice, and I would love to bring you into the fold.

I’m at jasonkelly.com.

And guess who’s onboard? A certain gentleman in his early fifties, who has plenty of time to catch up in that one retirement account he knows so well. I’m happy to have him.