If you want to invest for retirement, you are facing an uphill task. Most investment strategies will never help you reach your retirement goals. The reason is simple, they are investment strategies, not retirement strategies. You need to understand that investing for wealth and investing for retirement are not the same thing.

I wish I could tell you that you can just leave your money in pension funds like CPF Life, or put your money in some low-cost Exchange Traded Funds (ETFs) and live happily ever after, but it is often not the case.

To achieve a comfortable through investment, you need an investment framework that can generate sustainable retirement income.

Before I start, I will share with you a story.

Many years ago, in a far-away country, a farmer offended the King. The King sentenced the farmer to death.

The farmer pleaded for the King, “give me five years and I can teach your horse to talk”.

The King liked to own unusual things and a talking horse would certainly be interesting, so he said “yes”.

On his way out, the farmer’s friend said to him “Why did you make such a rash promise? You know no one has ever taught a horse to talk.”

The farmer replied: “Sometime before the end of five years:

  • The King might change his mind and pardon me.
  • The King might forget that he sentenced me to death.
  • The King might die.
  • I might die.
  • And who knows, the horse may be able to talk by then…

Given enough time, any investment strategy will work

Murphy’s law says when given enough time, “whatever can happen will happen.”

Now, if I were to tell you that there is no financial intelligence required to invest and you can generate a lifetime passive income for your retirement without doing anything, you might call me a liar outright.

But very often, people choose to subscribe to such claims because they hope it is true. Think about some of the popular investment theses:

  • Buying an ETF or index fund and hold for 30 years
  • Rely on a Real Estate Investment Trusts portfolio for your retirement
  • Buy blue chip stocks every time the prices go down and hold them for life
  • Buy a private property to beat inflation

I am not saying these investment strategies won’t work, but if your investment objective is for your retirement, these strategies have to be subject to the test of time.

Some of them will work out, some will not.

Since your retirement will only happen in the next 10 to 20 years and last another 30 over years, you are really betting your retirement on luck.

The problem is if you put your faith into one retirement investment strategy and it doesn’t work out, you can’t turn the clock back, your retirement is ruined.

Anything that can go wrong will go wrong

After spending more than a decade talking to people about retirement planning, I know that people tend to be over-optimistic about their retirement options.

One of the greatest risks of retirement planning is overconfidence. Believing you can accurately predict the future based on what you see today. – Ivan Guan

People always assume what happened in the near past will happen in the far future. And they can be right sometimes due to sheer randomness. But you really can’t be sure in the long run.

A typical example is a popular belief that CPF will always pay a “guaranteed interest rate” and you should lock all your retirement savings to CPF. That fact is that just because CPF pays a stable interest rate in the past decade, it didn’t always pay the same interest (you can check historical CPF interest rate here), and just like any investment scheme, it shouldn’t.

Another example is the recent worship of Singapore’s Real Estate Investment Trusts. Just because it was the best-performed sector in Singapore stock markets, you can’t over-rely on REITs for retirement. You need to understand the strong performance of REITs was just a reflection of the decade long low-interest-rate environment.

Sometimes people are carried away by what is hot in the market. Just last year, a few my pre-retiree clients talked about quitting their job and become a Uber driver to live a “financial freedom life”, and just with a blink of eyes, Uber said goodbye to the region.

We can talk about these on and on, Bitcoins, sell HDB and buy two condos, the next tech giant, etc.

After all, who can guarantee a horse can’t talk in 5 years’ time?

Money is a social science, not a physical science

If you are honest to yourself, you know that you cannot predict the future, but when people talk about an investment strategy, they often talk about the future with great certainty.

How often did you hear people using Warren Buffett’s name to talk about “value investing” for your retirement? His holding company, Berkshire Hathaway, has seen its share price grow from $19 in 1964 to $314,100 today.

That may be impressive, but there is only one Warren Buffett in the world and it is highly unlikely for you to be the next one. Warren Buffett may be a smart person but his investment success was in the backdrop of the Post–World War II economic expansion.

You can model value investing mathematically but the actual outcomes are highly dependent upon what will happen in the next 30 years and the behaviour of the humans involved. That makes the models far less predictive.

Your retirement outcome is not only determined by your investment strategy

I have explained why index investing doesn’t work well for retirement. Let’s move this discussion further.

ETF providers always use long-dated “back-tested” data to show that you always make money in the long run. It was claimed that the US stock markets have returned about an average of 9% a year over the past 150 years.

The problem is that you won’t be retired for 150 years.

Even if you were using buy-and-hold ETF strategies in the past (which was not possible), the average rate of market return you would have historically experienced over any single 30-year retirement could have been less than 3% per year or more than 10%.

And that means with the same investment strategy, your 30 years’ investment return can range from 242% to 1,745%.

In another word, your investment return is not determined by the investment strategy, but largely depends on the year you retire!

A Kueh Lapis approach is the solution

Financial freedom and early retirement (FIRE) is a popular topic in recent years and a lot of authors and bloggers are there telling you that investing for retirement is an effortless and no-brainer process. You can choose to believe that.

But if you share the same idea that there is no free lunch in the financial world, there is something we can do.

In my latest book “FIRE Your Retirement”, I shared my model of investing for retirement, which I call “Kueh Lapis Income Machine”.

For those who don’t know, Kueh lapis is a traditional multi-layer cake in Indonesia. In Indonesian language lapis means “layers”.

I was inspired when I had a kueh lapis once and one layer of the cake was burnt. But it didn’t affect the whole cake and it still tasted good.

The concept of “Kueh Lapis Income Machine” is that instead of focusing on the goal of a “million-dollars-retirement”, you should focus on retirement income instead. And your retirement income should be breakdown to many tiers just like a Kueh Lapis cake.

This will change the way you look at investment.

  • You stop comparing your investment portfolio with the index
  • You stop chasing the next big trading idea
  • You stop leaving your retirement outcome to luck

Instead, your investment is designed for your retirement and worked for your retirement.

To do so, you need to build a portfolio of Income Generating Assets (IGAs). When I say portfolio, it means each asset delivers investment return independently.

You need to understand having 10 REITs doesn’t mean you have a portfolio of IGAs. They are highlight correlated and subjected to the same impending risks. They are in the same tier.

To conclude…

Investing for retirement is a marathon, not a sprint. Don’t give up if you feel that you are behind others. Don’t brag if you have a jump start. There is a long way in front of all of us.

You need a multi-asset multi-strategy investment framework to generate a sustainable retirement income in the long run. As a licensed independent adviser, I helped many clients build IGA portfolios like below.

If you like my approach of investing for retirement, contact me using the form below for a non-obligatory retirement discovery meeting.

About the Author

Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
The views and opinions expressed in this article are those of the author. This does not reflect the official position of any agency, organization, employer or company. Refer to full disclaimers here.

  • Great article Ivan, Risk is the potential for your investments to lose money when the market or a particular asset class doesn’t perform well. There is always a degree of risk when you invest. If you absolutely cannot afford to lose your money, you might want to consider putting it into a savings.

  • Excellent article, Ivan. I completely agree – diversity and hedging across multiple asset classes and risk/return levels (as well as geographical and socio-economic hedging) are key to any investment strategy, retirement included, and should always be examined and fine-tuned on a regular basis. Running a business can often be a single-focus type of income generation – investment is a multi-tiered approach!

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