The Nobel Prize for Market Contradictions

With it’s recent awards to economists Gene Fama, Robert Shiller, and Lars Peter Hansen, the Nobel committee appears to have come to a conclusion, of sorts, that the markets are irrationally efficient. F. Scott Fitzgerald suggested the ability to hold two opposed ideas in mind at the same time and still be able to function was the mark of intelligence—or perhaps of market madness when it comes to money. With such a distinguished nod from Norway to the contradictions a typical investor faces in the market, no wonder it’s so hard be a safe and successful investor.

Contrary to the blandishments of the financial services industry, the most important thing for someone in the red zone approaching or in early retirement—ages 55-70—is not figuring out how the market works, or finding someone to trust who pretends they know, so you can try to maximize your returns.

No, the most important thing for those in the red zone is managing the risk to what has hopefully become sizable retirement savings and investments so that their retirement isn’t diminished by blunders in the market. It’s the wrong time of life to be chasing market returns to ‘top off’ accounts by trying to maximize returns by timing the market.

Instead, red zoners should focus on the things they can control and that will make a real difference—organizing all the accounts and silos of money that have multiplied over the years, protecting the funds that will provide essential retirement income, timing the claiming Social Security to maximize those benefits, and creating a secure retirement income plan to last for a long time, probably longer than most think.

In other words, red zoners should focus on sound financial management and planning with a real return, and let the fast talkers on CNBC or Wall Street chase someone else’s fast money.

For those whose household balance sheet has enough strength to support upside risk taking, by all means pay attention to Fama and Shiller, keeping both of their key insights in mind at once:

Invest in a broad, indexed global market portfolio

• to reliably earn market returns year in and year out and
• to manage the swings in market value that follow predictably irrational investor behavior

Just don’t bet the farm while you’re just getting ready for the harvest. Don’t take on more risk more than the cushion you have above the floor needed to fund annual fixed and some discretionary expenses in retirement. You need a plan first, to figure that out, before you start making moves in the market.

In the meantime, if you have any questions or comments, please let me know (mlonier@lonierfinancial.com)!

–Mike Lonier, RMA℠

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Michael Lonier, RMA℠ is a lifetime financial planner and retirement income specialist.

Securing your family's lifestyle over a potential 30-year retirement is the largest and most important financial goal you face. It is the lifetime goal of a prudent financial plan, and the focus of my practice.

Lifetime financial planning is a specialty that creates a life-long savings, investment, and risk management plan to meet your lifetime goals and securely fund your retirement.

As a fee-only fiduciary, my planning approach puts you and your family’s lifestyle, not your investment portfolio, at the center of the planning process. I focus on creating secure, reliable outcomes instead of high expectations based on at-risk market strategies.

This approach allows you to begin your retirement income planning at an earlier age when simple steps to secure your retirement income are much cheaper than later on in life.

My services organize and simplify your financial life, and set goals for your savings and investments. I don't sell securities or insurance products. My mission is to help you attain the confidence, peace of mind, and resources to reach your goals and live your life more fully.