Consistent fund management matters in retirement

Your Retirement Shouldn’t Need an Election-Night Swingometer

Why consistent fund management matters when your investments help pay the bills—and you’re still working out which queue you’re supposed to be in

Spectacular investment returns make excellent headlines. Consistent returns tend to receive less attention, rather like the politician who quietly balances the budget and goes home without blaming their predecessor.

Yet when your investments are helping to pay for groceries, electricity, holidays and visits from children who have mysteriously forgotten their wallets, consistency becomes considerably more interesting.

Especially if you have retired abroad, where you may already be managing three bank accounts, two tax advisers and a folder of paperwork substantial enough to qualify as hand luggage.
You moved for a simpler life. You now need an appointment to obtain the password that lets you book the appointment.

You could try saying it in Spanish, but that is unlikely to improve the payment terms.

When a good average disguises a bumpy reality

Imagine two hypothetical investments.

The first returns 7% each year. The second alternates between a gain of 30% and a loss of 14%. Its simple average return is 8%—apparently the better result.

However, invest €300,000 for ten years, reinvest everything, and the outcomes are:

The steadier investment finishes approximately €66,147 ahead.

That is a considerable amount of money. Even after the children discover that your retirement home has a swimming pool and start describing six weeks in August as “popping over”.

These are mathematical illustrations, excluding fees and taxes, rather than forecasts. They demonstrate the difference between averaging percentages and actually compounding money.

In an article published by CFA Institute’s Enterprising Investor, Will Morrison states:

“Holding the arithmetic mean of annual returns equal, a security with lower volatility will have higher compound growth.”

Losses and gains apply to different starting balances. If your investment falls by 20%, it needs to rise by 25% to recover.

Unfortunately, percentages do not negotiate. They are rather like the official who needs your original document: being charming, speaking louder or producing seventeen photocopies of something else will not change the calculation.

There is an important qualification: published compound annual returns already reflect those fluctuations. An investment that actually compounded at 9% has grown more than one compounding at 6% over the same period, assuming no contributions or withdrawals.

Consistency matters, but it does not magically overturn arithmetic. Nor does converting an disappointing pound balance into euros and hoping the larger number will cheer you up.

A market fall reduces your investment’s value. Taking money out at the same time leaves less capital available to benefit from a recovery. Financial planners call this sequence-of-returns risk: the order in which gains and losses arrive can materially affect the outcome.

As Rob Williams explains in Charles Schwab’s article on the subject:

“When you tap into your portfolio as it’s losing value, you have to sell more investments to raise a set amount of cash.”

Consider €300,000, with €15,000 withdrawn at the end of each year.

If the portfolio falls 20% in year one and rises 30% in year two, it finishes with €277,500 after the withdrawals.

Reverse those returns—up 30%, then down 20%—and it finishes with €285,000.

The same returns. The same total withdrawals. A €7,500 difference because of timing.

Without withdrawals, both would finish at €312,000. Once money is coming out, the journey matters.

It is a little like moving abroad: buying the house, arranging the paperwork and booking the removal van may all be necessary, but doing them in the wrong order can make the experience considerably more expensive.

And unlike your residency appointment, your monthly expenses do not politely disappear when you cannot get a slot.

Consistency means discipline in how decisions are made: a clear mandate, sensible diversification, risk limits, attention to liquidity and costs, and an approach that remains understandable when markets become uncomfortable.

For income clients, the manager’s strategy must also fit the withdrawal plan. A fund that pursues maximum growth may be perfectly reasonable for one investor and unsuitable for another who needs money every month.

The adviser’s role is to connect those pieces: spending needs, the manager’s investment approach, accessible reserves and a withdrawal level that can be reviewed as circumstances change.

A good explanation should leave you understanding what you own and why. You should not need the expression you use at the town hall when you have understood the greeting, your surname and absolutely nothing in between.

A steady monthly payment also needs examining. It may include a return of the investor’s own capital.

Receiving 5% a year does not necessarily mean the investment has earned 5%.

A payment schedule can be wonderfully predictable while the capital supporting it quietly shrinks.

Think of the wine rack in your new Spanish home. Taking out a bottle every Friday is a reliable arrangement. It is not evidence that the rack is producing wine.

That is why the questions should extend beyond “What did it return last year?”

How much did it fall during difficult periods? How does it fund distributions? What risks is it taking? What remains after charges?

A manager should be able to explain those answers without sounding like a minister asked where the funding will come from—or a builder explaining why “nearly finished” now requires another deposit.

The investment you can stay with

There is another advantage to a manageable investment journey: investors may be more likely to remain invested.

Morningstar’s Mind the Gap 2025 research carries the memorable subtitle:

“The more investors traded, the less they made.”

Over the ten years ending December 2024, Morningstar estimated that the average dollar invested in US mutual funds and ETFs earned 7.0% annually, compared with the funds’ aggregate return of 8.2%. The difference reflected the timing and size of investors’ purchases and sales. More volatile funds also generally showed larger gaps between fund returns and investor returns.

That does not mean every sale was a mistake, or that volatility alone caused the shortfall. It does reinforce the value of a strategy clients understand and can live with.

Retirement is supposed to give you time for the things you enjoy. If checking your portfolio has replaced checking the weather—and both are ruining breakfast—the level of risk may deserve another conversation.

Moving abroad already provides plenty of opportunities for uncertainty. You may not know whether the letter from the council is a bill, a reminder or an invitation to a local festival.

Your investment strategy should not require the same detective work.

Nor should it depend on a tip from someone you met at the marina who has “done very well in crypto” but always seems to have left his wallet on the boat.

An investment plan loses much of its usefulness if every downturn prompts an emergency meeting at the kitchen table. Particularly when that table was supposed to be reserved for long lunches and the Spanish homework you have been avoiding since March.

The cheap glass of wine may have persuaded you to move. Unfortunately, you cannot pay the dentist in favourable comparisons with Surrey.

For clients relying on investment income, consistent fund management deserves a central place in the selection process. It should sit alongside suitable growth potential, reasonable costs and a realistic withdrawal plan.

For those living abroad, the plan also needs to reflect where the money will be spent. If your income is in pounds and your bills arrive in euros, exchange-rate movements add another variable—one your supermarket will not sympathise with, however convincingly you explain what sterling used to buy.

The most useful manager is one whose approach remains disciplined through both good markets and difficult ones, and whose strategy supports the life the client wants to lead.

That life might include travelling, helping family, enjoying long lunches or finally mastering enough Spanish to stop accidentally agreeing to things.

You worked for years to retire somewhere with a better view. You should be able to spend some time looking at it.

Your retirement already has enough uncertainty. Your portfolio does not need to behave like a coalition government.

And you certainly should not need to bring your passport, two utility bills and a translator just to understand it.

Investment values and income can fall as well as rise. Illustrations are hypothetical; past performance does not guarantee future results. Withdrawals may reduce capital.

Further reading

• Michael Kitces: Volatility Drag And Its Impact On (Arithmetic) Investment Returns In Monte Carlo Analysis
• Charles Schwab: What Is Sequence-of-Returns Risk?
• Morningstar: Mind the Gap 2025
• CFA Institute’s Enterprising Investor: The Myth of Volatility Drag — Part 2