Wednesday, June 8, 2011

How fear can ruin your retirement

Commentary on MSN Money article
By Laura Price, Investment Advisor at Family Investment Center

Click here to read MSN's original article.

Uncertainty about the future, fear of poverty, lack of confidence in their investing abilities and distrust of the financial services industry were four of the most common feelings expressed…

A common mentality is that after years of hard work and diligent saving, retirement is the time to “live it up” and spend the money you’ve worked so hard to preserve. And while this is true to a point, the sad fact is: budgeting is still hugely important in retirement. I’m friends with a couple who bought a new RV and boat and began traveling as soon as they hit retirement. They had saved up a nice nest egg and wanted to start spending it immediately. Four years into retirement, their IRAs had been sucked dry. They never feared poverty. They never even saw it coming.

Few people are fully confident in their investing abilities. And of those few, only some are actually competent investors. The do-it-yourself model has produced undesirable results for many. But if you hire someone to help, who do you hire? A broker? An independent advisor? A friend or relative that claims to know all about investing? Then once you hire them, what’s a fair amount of compensation? Will they trade excessively? Will your portfolio receive individual attention?

You know the old saying, “No one knows what the future holds.” It’s true. And whether you’re starting your first job or already in retirement, it’s critical that we take the right steps now to protect ourselves from what may happen in the future.

One 66-year-old retiree quoted in the report said he is "having night sweats now. I'm really concerned about having enough. You never know how long you'll live and how much you'll need."

I’m only 25, but from time to time (admittedly more often than I should), I get panicky over money. My dad, bless him, is often the one I go to for sympathy, and he is always quick to remind me that “it’s only money.” Easy for us to say as we’re years from retirement, huh? But let’s be honest: no matter what our age and employment circumstances are, it’s not worth getting sick over. After all, getting sick is expensive, too! Luckily there are folks available to help in the meantime. You still need to stay informed and aware of your investments and overall financial health, but hiring the right team of professionals removes a huge burden, which will help you sleep at night.

Said one 60-year-old about his investing uncertainty: "Trying to shift stuff around at our age is scary. . . . If you make a mistake, we're in a cardboard box eating dog food. I don't have 20 years anymore."

A good investment advisor will regularly review your portfolio and, in most cases, make only gradual changes toward a more conservative portfolio over time. Drastic changes to a portfolio can have drastic consequences. For example, when the economy tanked in the late 2000s, many investors made the mistake of liquidating their portfolios when the Dow was at its lowest, worried that they would lose everything if they held tight. When the market had jumped back up enough that they felt comfortable to reenter, they obviously paid much higher prices. Though still recovering, those who rode the wave through the recession are way ahead of their counterparts who had bailed out of fear and uncertainty. Emotions are powerful things, and when it comes to investing, it can be dangerous to let emotions get the best of you.

One 63-year-old said, "If I trusted an adviser, then I'm always wary because I know that they are out to make money. . . . I don't trust them handling my money."

This is where Family Investment Center is different. We actually DO care about our clients. We’re often called “nerds” because we’re genuinely interested in economics, investments, and finance and want to share that knowledge and expertise to help people. If we weren’t helping people, it would all be a waste.

“Yes,” you say, “but you’re a business.” That’s true. But with our fee-only structure, we have direct incentive to help you grow your accounts. So when you’re paying us a small percentage of your portfolio every year, that means that when YOU make more money, WE make more money. Plain and simple.

In a world where we’re constantly bombarded with news of scams in the securities industry, it’s important to stay cautious. There are various safety mechanisms available to investors, such as third-party account statements, custodial insurance, and so on. Bernie Madoff operated outside the rules and got away with it for a while. Ponzi schemes thrive when investors don’t keep their eye on these types of things. For goodness sake, if you don’t trust your advisor, switch. You need to feel comfortable with the person you’ve hired to look after your money.

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