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.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
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.
-
Premium Tax Credit: Are You Eligible For This Health Insurance Tax Break?
Tax Credits The tax credit can help qualifying individuals pay for coverage from the Affordable Care Act’s health insurance marketplace.
By Gabriella Cruz-Martínez Published
-
Winners and Losers of Fed Rate Cuts
Navigating interest-rate changes can seem daunting, but these areas of the fixed-income market could perform better (or worse) than others.
By Jeffrey R. Kosnett Published
-
Six Ways to Optimize Your Charitable Giving Before Year-End
As 2024 winds down, right now is the time to look at how you plan to handle your charitable giving. The sooner you start, the more tax-efficient you can be.
By Julia Chu Published
-
How Preferred Stocks Can Boost Your Retirement Portfolio
Higher yields, priority on dividend payments and the potential for capital appreciation are just three reasons to consider investing in preferred stocks.
By Michael Joseph, CFA Published
-
Structured Settlement Annuity vs Lump-Sum Payout: Which Is Better?
As the use of structured settlement annuities grows, it can be tough to decide whether to take the lump sum to invest or opt instead for guaranteed payments.
By H. Dennis Beaver, Esq. Published
-
What to Do as Soon as Your Divorce Is Final
Don't delay — getting these tasks accomplished as soon as possible can help you avoid costly consequences.
By Andrew Hatherley, CDFA®, CRPC® Published
-
Many Older Adults Lack Financial Security: What Can We Do?
Poor financial literacy and a lack of foresight have led to this troubling reality. It's going to take tax policy changes, education and more to address it.
By Ryan Munson Published
-
Winning Investment Strategy: Be the Tortoise AND the Hare
Consider treating investing like it's both a marathon and a sprint by taking advantage of the powers of time (the tortoise) and compounding (the hare).
By Andrew Rosen, CFP®, CEP Published
-
How to Fight Inflation's Hidden Threat to Your Savings
If higher prices are putting your savings goals on hold, you're in danger of financial erosion. Fortunately, several strategies can help stop the spread.
By Kevin Brauer, MBA, CPA, CMA Published
-
10 Inefficiencies I Look for on Rich Retirees' Tax Returns
Your tax return could hold clues to several missed opportunities and important gaps in your retirement planning.
By Evan T. Beach, CFP®, AWMA® Published