Learn From a $700,000 Mistake: Taking Undue Risk is Avoidable

At one time or another, all of us depend on the advice of others to help us navigate our way through unfamiliar territory.

Sometimes the advice is stellar. I once was on a fairway at the famous Pebble Beach Golf Club in California and facing a particularly difficult hole. One miscue and my ball would land unceremoniously in the Pacific Ocean. A caddy, savvy to the nuances of the course, suggested which club I should use. I followed the advice and not only saved the ball, but made it to the green and finished on par.

On other occasions, though, advice can be flawed.

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In 1998, my wife and I were building our insurance business in the Mid-Atlantic. A friend suggested I meet his investment broker, who could get me in on the ground floor with new private companies just as they were seeking capital to expand and launch their IPOs (initial public offerings).

The broker said I should invest in tech stocks, which at the time had a high growth potential. She also warned me that I could lose some money, but the potential loss didn’t compare with how much I could make. In the course of two years, my investment of $250,000 grew to $763,000. As you might imagine, I couldn’t have been more pleased.

For a while, at least.

In 2000, while on a Caribbean cruise, I happened to catch the news and didn’t like what I saw happening with the stock market. The market was falling harder and harder each day, and I couldn’t call my broker to find out what was going on with my investments until I returned to the United States.

I was devastated to learn I had lost more than $300,000 of that $763,000. But I continued to ride it out, hoping that if I waited, my investment would bounce back. Unfortunately, the market didn’t reverse course, and my investment eroded to $63,000.

All I wanted to do was grow my money, but working with a stockbroker and being exposed to so much risk had lost its appeal. I finally cashed out, but not without the drive to do something about it. I knew there had to be others who had met a similar fate.

That’s when I decided to make a career course change, become a Certified Financial Planner™ and build a practice that could help people invest for the long term by using a variety of financial strategies that include both insurance and investment products. I think it’s important for anyone to work with a financial professional who can develop strategies to help them protect their hard-earned money rather than taking risks they can’t afford and don’t need to take.

You’ve probably heard that it’s essential to have a diversified portfolio. But perhaps even more important, you want to have an overall plan in place — and make sure that plan is a sound one. Sometimes clients have come to me with what they thought was a well-laid plan — until I pointed out they are taking much more risk than they need to take.

In life, we tend to learn from mistakes. Of course, it’s even better when we can learn from someone else’s mistakes rather than our own. As painful as it is, I tell people to feel free to learn from the mistake I made of taking undue risk. That’s especially true when you’re counting on your investments to fund your retirement, because when your retirement is on the line, you’ve got to do it right. It’s critical that you have a retirement plan in place that will help you make sure your money lasts as long as you do.

As was the case with that hole at Pebble Beach, you want advice that will keep you on par and as far away as possible from those hazards.

Alfie Tounjian is a CERTIFIED FINANCIAL PLANNER™ and founder and president of Advantage Retirement Group and Tounjian Advisory Group LLC. Alfie is an Investment Adviser Representative of Tounjian Advisory Group and a licensed insurance professional.

Rozel Swain contributed to this article.

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Any references to protection benefits or lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.