Financial Fact vs Fiction: Why Your 'Magic Number' Isn't Actually Magical
ARTICLE SUMMARY
Diversification Myth: Investing in broad market indexes like the S&P 500 isn’t true diversification — these are heavily weighted toward a few large tech stocks. Investors need to consider both concentration and participation and may want to explore equal-weighted or factor-based ETFs, and international or small/mid-cap exposure for better balance.
The "Magic Number" Myth: Retirement planning isn’t about hitting a single savings number. It's a dynamic, year-by-year process that needs to account for variables like inflation, market performance, Social Security changes, and longevity. Retirement itself often isn’t a fixed date but a gradual, flexible phase of life.
Bond Safety Assumption: Bonds are not always a safe haven. They carry credit and interest rate risk, and can decline in value when rates rise — as seen in 2022 when both stocks and bonds dropped. Investors should understand these risks rather than assume bonds will always balance out a portfolio.
Tax and Yield Misconceptions: Many retirees remain in high tax brackets due to RMDs and taxable Social Security income. Also, chasing high dividend stocks without considering price volatility can lead to losses — sometimes, lower-yielding but stable products like CDs may be more appropriate depending on goals and risk tolerance.
