Another day, another news story, another phone call from a client.
And that’s fine. I like talking to the people I work for.
What I really fret about are the calls I don’t get, and the people who are facing a 24-hour news cycle without a filter.
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Too much of a good news thing?
Lately, the news has been so positive – with reports about record days on Wall Street and the second-longest bull market in history – that I worry folks are getting a false sense of security. I’m like the grandfather whose grandkids are playing by the edge of a cliff, and everybody’s saying, “It’s OK, they’ve got another 3 feet before they go over.”
It’s not OK.
Because they think everything’s fine out there, they want to push things a little further … and a little further. They brush off warnings, and they’re slow to make decisions that could help keep them safe. Indeed, they might think they don’t need any supervision at all.
Why? Because they listen to their friends, or they watch a TV expert or they see something online, and they get the information completely out of context and try to apply it to their own retirement plans.
How the news can steer investors wrong
For example, I had a gentleman in my office recently who said he’d heard on TV that over the past three years, passive investment has outperformed active investment advice.
“Well, that’s probably accurate,” I told him. “And I hope that’s why you’re here talking to me. Because you’re not planning on being retired for only three years, are you?”
Of course he isn’t. He’s 70 years old, and he expects to live another 20 years.
“So, let me ask you a question,” I said. “Are you pretty confident the next 20 years will be just the same as the last three? Because that’s what you’re telling me was your take-away. And that just isn’t how it is in the real world.”
I reminded him of the motto we used in one of our seminars he attended: Our goal is to get you to retirement and through retirement.
Retirement can be a challenging time, and he’s about to enter that part of his life, moving from the accumulation stage to the distribution stage. The distribution stage is where you want to feel confident in your financial strategy. That’s where you need a coach and a trusted adviser.
“You’re paying me to help keep you from going back to work,” I said. And I gave him a little history lesson.
The S&P 500 over the last 15 years has averaged about 7%. But the trade-off is drawdown. Drawdown is from peak to trough, not performance in any one year. Think back a decade (if you dare): The S&P dropped more than 55% from its peak in October 2007 to its trough in March 2009. I don’t know many investors willing to gamble on losing 55% to make 7%.
Financial advice is about more than just performance
Speaking of comparing apples to oranges, it’s a mistake to assume that all passive managers outperform all active managers. Or to think that you’re paying less for their recommendations.
If you think that average 7% return would become 5.25% after you paid my fee, for example, you may be missing something. Because I invest efficiently; I do things specifically to help keep costs down. But that mutual fund you or you and your passive manager chose could have 2% in fees that don’t have to be disclosed. And there could be commissions and other fees on top of that.
The value of advice can’t be gauged on asset performance alone. Solid assistance from a knowledgeable, interested adviser can build confidence and have a positive impact on retirement readiness.
I remember when I was a kid, my grandparents would listen to Paul Harvey on the radio. And when he came back from a break he would say, “And now … the rest of the story.”
That’s kind of the way investing has become. You want somebody to tell you the rest of the story. And your trusted financial adviser is there to do that for you.
Kim Franke-Folstad contributed to this article.
Investment advisory services offered through AE Wealth Management, LLC (AEWM). AEWM and Roberts Wealth Management are not affiliated companies. Investing involves risk including the potential loss of principal.
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