*A version of this article origionally appeared on the CFA Institute's Enterprising Investor blog.
I recently participated in a fun exercise.
My friend Phil Huber, CFA, asked a group of us to define “Evidence Based Investing in 10 Words or Less.” My favorite definition came from Bob Seawright, who said, “A relentless focus on what works, what doesn’t, and why.”
On his blog, Above the Market, Seawright wrote that evidence-based investing is “the idea that no investment advice should be given unless and until it is adequately supported by good evidence.”
Who wouldn’t want that?
This growing movement has fueled Vanguard’s rapid growth, to over $4 trillion in AUM. It has also generated numerous articles, a magazine cover, an infographic, and some entertaining alternatives for those advisers who want to try another variation. It even spawned its own conference.
While these are welcome changes, much of the conversation has focused on the investing side of things: What funds to own; how to set an investment allocation; which factors work and which don’t; and how to minimize expenses, taxes, and trading costs, for example. However, the evidence as it relates to retirement planning — specifically the distribution phase of an investing lifecycle — is often left out of the discussion.
Both the accumulation and distribution phases are critically important. And with retirement, as with any vintage of wine, you have only one chance to get it right.
To extend the metaphor, think of the accumulation phase of an investing life as the planting of a vineyard. A vineyard, like a portfolio, can survive many different seasons and weather patterns, and like a well-designed portfolio, a vineyard is resilient. Though the vineyard is tended over time, the care should kick into hyperdrive each fall when the grapes are harvested.
As the weather over each growing season and at harvest makes each vintage of wine unique, the year you retire and your portfolio distributions begin has a big influence on the overall retirement experience. When it comes to distributing a portfolio, there are specific factors to pay attention to. Here are a few suggestions to put a little evidence-based thinking into your retirement plans.