Skip to main content

Sound Advice: September 2, 2020


 Planning to start investing?  Outstanding idea! 

Want to do it yourself?  Well, that’s a bad strategy.

Sure, there’s a wealth of financial data and tools available on the internet.  But there’s a world of difference between a professional doing a job for which he or she is qualified, trained, and experienced, and an average Joe doing the same thing after a few hours of online research.  After all, would you trust a doctor to operate on you if he would be getting the instructions for the surgery from Wikipedia pages or YouTube videos?

Bad retirement planning can ruin your financial goals and leave you penniless at an age when you need money the most.  That’s why it’s critical that you choose a trusted, reputable, and well-experienced personal financial planner to secure your financial future.

Here are just some of the ways in which bad retirement planning can cause big problems.

An Emotional Rollercoaster


It’s not an understatement to say that smart investing requires a heart of steel.  Most people let their emotions get the best of them.

You are online, analyzing recent financial results.  You find that stocks have gone up and bonds have gone down.  What do you do?  Many people take it as a sign to move all their funds into stocks.  This 100% or nothing plan is a financial strategy doomed to disaster!

Here’s the golden rule of Retirement Planning:  It is a long-term strategy.

Over the course of many years, the performance of stocks, bonds, mutual funds, and other instruments in your portfolio will rise, fall or stagnate multiple times. You cannot let your emotions get the best of you and keep changing your investment strategy based on every new piece of financial planning advice you get.  If you do that, your entire retirement funds will be subjected to the vagaries of short-term market fluctuations.  In other words, you’ll be losing a substantial amount of money in short order and may never be able to get it back.

Absence of the Right Benchmarks


How do you know which investment options are performing best and should be in your portfolio?

You probably follow the standard benchmarks that market professionals use, such as the Standard & Poor’s 500 index.  But the S&P 500 and other popular benchmarks only reflect the market performance of individual asset classes.  Individual asset classes have no diversification, but diversification is the key to the potential for worthwhile gains while limiting risk exposure.  These single-class benchmarks outperform some of the time, and underperform at other times.  So, when you focus on them without seeing the bigger picture, you are not getting the right financial planning advice.

Without a broad view, you will mostly end up investing in the wrong instruments, which will leave your retirement funds largely depleted by the time you retire.

On the other hand, industry professionals such as Certified Financial Planners will have comprehensive benchmarks that are diversified extensively to reveal more accurate market trends.  Their investment strategies will be better constructed and more likely to produce better returns.

No Hedging

Stocks, bonds, and other financial instruments always fluctuate widely in the short term.  So it’s important to stick with your portfolio.  This holds true even if a few of the holdings in your portfolio are not performing well.  But what about those investments that go down in the longer term?  How do you protect your retirement funds from that?  And how do you protect your portfolio from commitments that plunge unexpectedly and never come back up?

Since it is impossible to say which stock or bond will fall unexpectedly, there are countless examples of amateur investors suffering major losses after having invested heavily in poor selections.

Professional advisers counter this risk by using a broad variety of asset classes.  It's just like weaving together many fibers to create a strong fabric.  The goal is to ensure that even if there's an occasional disappointment, the rest of the portfolio will continue performing well and preserve your retirement funds.

How diverse is diverse enough?  The global economy is complex and extraordinarily interconnected.  If one industry goes down, many others will be affected.  Some industries will suffer negative shocks, while some industries might experience a boom.  A DIY investor can never gain the expertise or knowledge to determine which industries are well-protected and which are not.

Only a seasoned professional planner with years of experience in the industry can determine that and spread your funds properly over a well-conceived group of asset classes to increase the likelihood of the good returns you are hoping for while limiting exposure to risk.

N. Russell Wayne, CFP®

Comments

Post a Comment

Popular posts from this blog

Sound Advice: July 8, 2020

Jobs Are Up, But So Are New Infections Through the spring months, m ost of the economic data was extremely negative, with record declines in employment and consumer spending.  The speed of that decline had no modern precedent. We are now in a recession.   The shortest recession on record occurred in 1980 and lasted just six months.  Second place goes to a seven-month recession in 1918-19, which was tied to the Spanish flu pandemic.  The big question is: When will this recession end? Given surprisingly strong data in May, April may have been the bottom of this economic cycle.  If so, it will have been the shortest recession on record.  With massive support from the Federal Reserve, the federal government, and the reopening of previously closed businesses, employment surged unexpectedly.  At the same time, pent-up demand, stimulus checks, and generous unemployment benefits led to a reacceleration of commercial activity. Still, not all is rosy.   In his recent testimo
Post a Comment
Read more

Sound Advice: December 13, 2023

What You Need To Know About Long-Term Care Insurance Long-term care insurance (LTCI) is a type of insurance that helps cover the costs of long-term care services, such as assistance with activities of daily living (ADLs) such as bathing, dressing, and eating. It can also cover the expenses associated with care in a nursing home, assisted living facility or at home by a professional caregiver. Here's what you need to know about long-term care insurance: 1. Not Covered by Health Insurance or Medicare: Long-term care services are generally not covered by health insurance or Medicare, which only provide limited coverage for skilled nursing care and rehabilitative services. Medicaid covers long-term care, but you need to meet strict income and asset requirements. 2. Costs of Long-Term Care: Long-term care can be expensive and can quickly deplete your savings. LTCI helps to cover these costs, providing financial security and ens
Post a Comment
Read more

Sound Advice: November 15, 2023

Where To Get High Yields Today Investing for high yields often involves taking on higher levels of risk. Here are several options that historically have offered the potential for high yields, though it's important to note that all investments come with risks, and it's crucial to do thorough research and, if necessary, consult with a financial adviser before making any investment decisions. Money Market Funds: This is the simplest and most straightforward option currently available and daily liquidity.   Current rates approximate 5%, which from most standpoints compares favorably with other generous yielding options. Dividend Stocks : Look for established companies with a history of paying dividends. These can offer regular streams of income, but remember that stock prices can be volatile and dividends can be reduced or eliminated. Real Estate Investment Trusts (REITs) : REITs are companies that own, operate or finance r
Post a Comment
Read more