Much attention is focused on constructing cost- and risk-efficient investment portfolios. The Thrift Savings Plan does an excellent job of supporting this effort by offering only ultra-low cost index funds, and preconfigured asset allocation models, in the form of the L Funds, that are carefully engineered to provide the maximum expected rate of return for varying levels of
investment risk. In fact, it offers everything you need to build a superior portfolio—one that can be expected to outperform anything else out there. A cost- and risk-efficient portfolio is essential to any plan that seeks to maximize your lifetime income.

But, it’s a mistake to think that this is all you need to be successful in investing for retirement
income. The truth is that constructing an exceptional portfolio is only the first step. Think of it like building the perfect rocket for a trip to the moon and back. While the right rocket is essential for a successful trip, it does not, on its own, guarantee success. The ship must be capable of the journey, but a good pilot can make up for certain shortcomings in design.

Without a clear understanding of your goals, resources and constraints, it’s impossible to know what’s best for you. And, without that knowledge, and the right understanding of portfolio navigation and control, it’s impossible to know how to manage that portfolio along the path to a successful outcome. How much of your resources you expos to risk at any point, how you allocate your resources to the various investment opportunities you have at your disposal and which securities you use to implement that allocation are all critical decisions that have to be made, again and again, until your portfolio runs dry—whichever comes first.

To manage a portfolio successfully through a lifetime requires far more than simply deciding on the right asset allocation model today. It requires making that decision over and over again. When John Bogle, founder of Vanguard Funds, recommends that you use a total stock market index fund for your entire portfolio, he’s offering you a specific vehicle, not the operating instructions and a map.

Boilerplate strategies like buy-and-hold, value, growth and dividend investing don’t take your
objectives and circumstances into account and, therefore, can’t be relied upon to succeed. What works for one investor might be a formula for failure of another.

Like any complex, lengthy and important project, managing your retirement portfolio to meet
your needs requires skill, attention and effort from beginning to end. It’s a process that begins with plotting a course to your objectives, measuring your progress against expectation frequently, and correcting your course as you go, before it’s too late to recover from the unexpected.

When it comes to investing for maximum retirement income, there simply is no such thing as a reliable, set-it-and-forget-it investment strategy.

Written by Mike Miles
For the Federal Times
Publication April 7, 2014