The Perfect Investment Doesn’t Exist

The following is adapted from The Retirement Secret by Pat Strubbe.

Imagine standing in front of a whiteboard and writing down the characteristics of your perfect investment. What would you write?

A good starting point would be “high returns,” because we all want to accumulate as much money as possible for retirement. You might also write “completely safe,” because you don’t want to risk losing the money you invest. Lastly, you’d probably include “access,” because you want to be able to withdraw or move your money at any time without penalties. 

High returns, safety, and access would create the perfect investment, but here’s the bad news: the perfect investment doesn’t exist. You won’t find an investment with all three qualities because it would be too good to be true. 

If you accept this financial principle and look for great investments instead of “perfect” ones, you can save yourself a lot of heartache when shaping your retirement portfolio. 

The Truth About the “Perfect” Investment

Sometimes, people think they’ve found a perfect investment, but every time, one of two things is happening: either the investment is too good to be true, or the investor doesn’t know the drawbacks yet. Just ask people who invested with Bernie Madoff. 

You’ve likely heard of Bernie Madoff—the financier who orchestrated the largest Ponzi scheme in world history and stole billions of dollars from investors. But the most interesting part of Madoff’s scam is that he didn’t promise anything crazy, like doubling people’s money overnight. According to Wikipedia, he promised unusually consistent returns of around 10 percent per year and the ability to withdraw money whenever you wanted.

Like other “perfect” investments, Madoff’s turned out to be too good to be true. As an investor, you have to protect yourself from people who would take advantage of your optimism. Remember that the perfect investment doesn’t exist, and be skeptical about deals that sound like a dream. 

Maintain Reasonable Expectations

Even if you acknowledge that the perfect investment doesn’t exist, it’s easy to lose sight of it if you constantly hear others exaggerating their success. 

Most of us have had this experience at one point or another: you’ll be chatting with friends or family, and someone will brag about how great their investments are doing. 

You’ll probably be tempted to think, Hmm, do they know something I don’t know? 

They don’t. When this happens, remind yourself that there is no way for someone else to have a perfect investment either. You’re not hearing the whole story, and for your own sanity, it’s important to maintain reasonable expectations for each of your accounts. It’s unfair to expect any of them to be perfect, so try to keep a realistic perspective. 

There will always be some drawback to an investment or some aspect you don’t like. Otherwise, it would be too good to be true. 

Aim for Two Out of Three Winning Qualities

The perfect investment doesn’t exist, so what should you look for instead?

Although it is unreasonable to expect any investment to offer all three of the characteristics described above, it is absolutely possible for one investment to offer two of the three. 

Consider the characteristics “Safe” and “Access.” Can you think of an account that keeps your money safe and lets you take money out of it whenever you want?”

A checking account fits that description. Your checking account is safe. It lets you draw your money out when you want it. But you definitely don’t put money there expecting a big return. 

Now let’s move to these two: “Safe” and “High Return.” Think of somewhere that does not give you access to your money anytime but gives you a better return than your checking account. You may think of a certificate of deposit (CD) as fitting this criteria. With a certificate of deposit, you give up access, and in exchange, you get a better return.

Lastly, think about giving up “Safety.” So now you have complete access to your money, and you have a high return. If you thought of the stock market, you’re exactly right. It definitely would not be considered safe, but the fund would generally give you access to your money because you can sell it any day the market is open. Also, historical averages would suggest that a stock mutual fund would at least give you the opportunity for higher returns. 

Choose Investments That Meet Your Needs

As you can see, while there’s no such thing as a perfect investment, you can find plenty of options that offer two out of the three desirable characteristics: high returns, safety, and accessibility. 

To get the most out of your investments, your goal shouldn’t be to find a perfect investment, but the investments that best meet your needs. For instance, if you need your money to be accessible, prioritize options that allow for that. If you don’t need access and are willing to take on some risk, choose an investment that maximizes your returns. 

Every investment has a drawback, but you can achieve success as long as you keep your expectations realistic, know when something is too good to be true, and prioritize what you need most. 

For more advice on investing for retirement, you can find The Retirement Secret on Amazon.

For over twenty years, Pat Strubbe has taught retirees and pre-retirees how to preserve their assets and increase their income. After watching his own parents struggle when his grandfather needed help, Pat made it his mission to help others avoid that pain. He has been featured in USA Today, Columbia Business Monthly, Investor’s Business Daily, and other national publications, and is a regular contributor on WIS News. You can listen to Pat host the radio show Save Your Retirement on WVOC (560 AM). Pat lives in Columbia, South Carolina, with his beautiful wife, Janelle. He’s the proud father of four children: Carter, Ava, Gabriella, and Isla.

Securities offered through Kalos Capital, Inc. and Investment Advisory Services offered through Kalos Management, Inc., both located at 11525 Park Woods Circle, Alpharetta, GA 30005, (678) 356-1100. Preservation Specialists, LLC is not an affiliate or subsidiary of Kalos Capital, Inc. or Kalos Management, Inc.