Advertisement
Investor Psychology

Back Away from the Cliff! Managing Risk in a 24-Hour News World

If you’re a financial news junkie, realize that keeping a close eye on the daily headlines could steer you wrong over the long term if you’re not prudent.

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.

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.”

Advertisement - Article continues below

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.

Advertisement
Advertisement - Article continues below

“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.

Advertisement - Article continues below

“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.

Advertisement - Article continues below
Advertisement
Advertisement - Article continues below

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.

Advertisement

About the Author

Paul E. Roberts Jr.

Founder and Chief Investment Officer, Roberts Wealth Management

Paul E. Roberts Jr. is the founder and chief investment officer of Roberts Wealth Management. He has passed the Series 65 exam and has insurance licenses in Texas, Louisiana, Mississippi and Alabama. He spent 22 years as a practicing CPA, then founded Roberts Wealth Management, a firm that focuses on estate preservation and retirement planning. His primary areas of focus are retirement income planning, investment management, 401(k)/individual retirement account (IRA) guidance and asset protection.

Advertisement

Most Popular

11 Dividend-Paying Stocks You Should Think Twice About
dividend stocks

11 Dividend-Paying Stocks You Should Think Twice About

Dividend-paying stocks often can be a store of safety, but 2020 has been difficult on income equities. These 11 picks look like shaky plays despite th…
September 21, 2020
How To Buy a Roth IRA When You Make Too Much To Qualify For One
Roth IRAs

How To Buy a Roth IRA When You Make Too Much To Qualify For One

With their tax-free growth and tax-free withdrawals, Roth IRAs are a great deal — if you qualify. If you don’t, well, there’s still a way to get into …
September 23, 2020
High-Tech Aids for Aging in Place
Caregiving

High-Tech Aids for Aging in Place

Apple Watch and other technology provides fast feedback, comfort for older users, and a powerful assist for caregivers.
September 23, 2020

Recommended

Bonds: 10 Things You Need to Know
Investing for Income

Bonds: 10 Things You Need to Know

Bonds can be more complex than stocks, but it's not hard to become a knowledgeable fixed-income investor.
July 22, 2020
Best Bond Funds for Every Need
Investing for Income

Best Bond Funds for Every Need

In a changing market, it’s important to remember why we hold bonds in the first place.
September 15, 2020
Does a 40% Bond Allocation Make Sense in Today’s Portfolios?
retirement planning

Does a 40% Bond Allocation Make Sense in Today’s Portfolios?

For many investors, the short answer is no. Here’s why, and what you might consider instead.
September 7, 2020
Is the Stock Market Closed on Labor Day?
Markets

Is the Stock Market Closed on Labor Day?

The good news: Stock markets and bond markets alike get the day off for Labor Day. But traders don't get an early start to the weekend.
September 5, 2020