Making sense of the concept of saving for retirement

I entitled my blog; "common sense for the amateur retirement investor".

I am, in fact, an amateur retirement investor. I have no training or credentials in this area. I am, however, a hard-working health care professional. It took a reasonable amount of intellectual horsepower to get to where I am professionally, so the subject of investing for retirement should not be too far beyond my grasp. Being a subject-matter expert on a particular slice of the health care field, I accept the concept that there are experts who can guide a person in making wise decisions about subjects in which that individual lacks personal knowledge or expertise.

Trouble is, I have looked fairly diligently for those experts and have failed to find one who can deliver even a modest return on investment for my retirement savings. Apparently I am not alone.
In the last year of my surgical training, I participated in a university system retirement plan and socked away 1 years worth of deferred compensation; a grand total of $1500, matched 1:1 by the institution. The manager was TIAA/CREF. I chose the "stock fund", a very broad based equity fund with very low expense ratio, with it's 40+ years of history. I finished my training and moved on into my career and allowed that fund to "naturally" mature. 15 years later, that fund has barely doubled in value. The rate of return is roughly half what common wisdom quotes as the expected rate of return for the stock market over many decades of slightly over 10% per year.

My wife has diligently invested in her company retirement plan, as well as a supplemental retirement savings account over the last 20 years. The investment earnings contributions of these plans, managed by "institutional investors" is a small fraction of her personal contributions, even over 20 years. She is invested in a "diversified" group of mutual funds.

After starting my surgical career in a group practice, I began participating in our corporation qualified plan. Each year for the last 15 years I have contributed the maximum allowable amount to our qualified plan, which allows the employee to self-direct the investment. I went to a reputable full service brokerage account, chose a senior broker and explained my desire to build a broad-based investment portfolio over the next 30 years. He directed me into the purchase of equities and I soon learned the consequence of "momentum investing" during the tech bubble.

Having learned a painful lesson about valuation and about my own tolerance for risk, I insisted on a new approach. In 2002, he proposed that we build a "S&P 500 mutual fund" of equities across the sectors, only without those pesky mutual fund management fees. I dutifully contributed my deferred income and we chose large-cap stocks in each sector, safe in the knowledge that I would track the historic rise in valuation of the largest and most successful companies in the world. Little did I know that the S&P 500 would appreciate exactly ZERO in the decade I was building my portfolio. In fact, over that decade, brokerage fees added up to $12, 000, far more than I actually earned in the process of investing.

Also during that time, I purchased life insurance. My insurance broker steered me first to variable life insurance, then whole life policies, explaining about the cash value appreciation, the tax deferred earnings, the ability to borrow against my own policies, etc. etc. I scrimped and squeezed my budget to fund another stream of savings for the future, trusting in the wisdom of these august, highly rated companies to prudently and conservatively invest my premium payments. Sadly, the actual investment performance never even roughly approximated the models projected by the insurance broker at the time of purchase. 10 years later, the cash value of those policies is no more than 80% of the cost of purchasing them, even accounting for the actual cost of insurance within them.

So, the experts haven't done much for me or my wifeor anyone I know, for that matter.
My growing awareness of the sub-standard performance of my retirement assets, the increasing frustration with lack of transparency on the part of my advisors and growing alarm as my earning years tick by, I began to read, and read, and read some more. I read every source I could find on investing. I subscribed to newsletters, websites, associations for independent investors. I consumed information in magazines, books, and television shows. I read the biographies and autobiographies of great investors. I tried to educate myself from every angle I could find about prudent means to secure a stream of income in retirement.

In the throes of a stock-market down-draft, I dismissed my broker, transferred my badly diminished funds to a discount broker and struck out on my own, seeking to develop a portfolio that will reliably pay me a rising stream of income that will someday be enough to support my wife and I when we no longer can work for a living. I suspended premium payments on my life insurance policies, leaving them to fund themselves out of the existing cash value, refusing to throw good money after bad.

This blog is a letter to myself, attempting to explain what I am learning and how this is driving me to make decisions on managing my portfolio. If you happen upon my blog, maybe you'll gain an insight, or maybe you can lend me one, that will help us both on our way.