The Single Most Important Factor to Retiring Rich and Staying Rich in Retirement

The Single Most Important Factor to Retiring Rich and Staying Rich in Retirement

Posted On October 27, 2021 12:03 pm

Each week I watch a lot of big macro sources, such as the Ritholtz Wealth Management trifecta of Animal Spirits, The Compound, and Friends, and What are Your Thoughts. 

I also watch Real Vision’s Daily market recap, with a rotating cast of regular economists and analysts who provide me with a big picture view of the global financial system and major trends worth keeping an eye on. 

This week’s special report was inspired by what economist Darius Dale of 42 Macro recently said on Real Vision. 

There’s a bubble in certainty”. – Darus Dale 

This brings me to the single most important factor that can help you retire rich and stay rich in retirement. 

The Templeton-Marks 80% Certainty Limit 

John Templeton and Howard Marks are two of the greatest investors in history. They noted that about “20% of the time this time really is different”. 

In other words, even if all the available facts say that something is as close to a “sure thing” as you’ve ever seen, there is a 1 in 5 chance that you’re missing something important. 

Or even if you’re not, there’s a 20% chance that fundamentals will shift in such a way as to make you wrong over the long term. 

All models are wrong but some models are useful.” – British Statistician George E.P Box 

The world is so complex that even the most advanced models, that prove the most accurate over time, can only be right most of the time. 

For example, Renaissance Tech, the greatest quant hedge fund of all time, is right with just 52% of all trades. Yet being right must be 52% of the time, and limiting all trades to 1% gains or 1% losses and making millions of trades per day helped them achieve a 71.8% CAGR return from 1994 through 2014, the single best investment record in human history. 

By the way, since 1926 the S&P is up 52% of all days, showing the truth of what Buffett once said. 

It’s better to be approximately right than precisely wrong.” – Warren Buffett 

Now let me give you some clear examples of just how certainty can not just lead you to poorer returns, but could even crush your retirement dreams if you let it.  

How Certainty Can Kill Your Retirement Dreams 

Every year since the Great Recession GMO has put out its seven-year forecast. And each time they predicted horrible market returns. 

Their model is complex but basically assumes that margin mean reversion will…

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About author

Dividend Sensei

I'm an Army veteran and former energy dividend writer for The Motley Fool. I'm a proud co-founder of Wide Moat Research, Dividend Kings, and the Intelligent Dividend Investor. My work can be found on Seeking Alpha, Dividend Kings, iREIT, and the Intelligent Dividend Investor. My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives. With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and income streams and achieving long-term financial goals.

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