Chapter 2 Investment Return Shortfalls. Building and maintaining wealth can be divided into two tasks. The first task, covered in Chapter 1, is saving money, which includes dutifully depositing small amounts into savings each month while working full-time. | Chapter 2 Investment Return Shortfalls There was a time when a fool and his money were soon parted but now it happens to everybody. Adlai Stevenson uilding and maintaining wealth can be divided into two tasks. The first task covered in Chapter 1 is saving money which includes dutifully depositing small amounts into savings each month while working full-time. The second task is investing those savings properly from the day your first dollar goes into a savings account until the last day you remain among the living and in some cases even into the hereafter. As your wealth grows the rate of return on that money becomes increasingly important. Given the declining level of retirement income from guaranteed employer pensions and Social Security and the lower returns expected from the financial markets in the future people cannot afford to make too many investment mistakes. Retirement accounts need to be managed according to a well-tailored low-cost investment plan that is designed using modern financial planning tools. If managed correctly a nest egg 16 Copyirght 2003 by The McGraw-Hill Companies Inc. Click Here for Terms of Use. Investment Return Shortfalls can grow to the point where it will meet retirement income needs without excessive risk and you will not fear outliving your money. Unfortunately the facts show that we do not do a very good job of saving and investing. Several studies on the rate of return in selfdirected retirement accounts show that an overwhelming majority of people earn far less than they should be earning. How low are the returns of individual investors The Nebraska Retirement System 401 k plan is one of the oldest 401 k type plans in existence and has performance data going back several decades. Figure 2-1 illustrates the average performance for workers who participated in the plan from 1970 to 1999. The bar on the right is the annual return that the average worker earned on personal savings in the self-managed portion of the 401 k plan. The .
