“Close your Eyes and Ignore Everything.” – John Bogle, Vanguard Founder (Speaking to an interviewer about recent market volatility)
In a quest to avoid “risky investments”, over the past few years, many investors have flocked to what they perceive are “safe investments”. In the end, they have likely increased the chances of outliving their resources. Not exactly what one would deem a sound investment strategy. In this case, comfort has a very real and direct cost.
Don’t Trade the Future for Today
For the main, we make financial decisions largely based on emotion. We are attracted to the narrative, the “buzz” instead of the data. We don’t like uncertainty and the whole world is absolutely brimming with uncertainty. We take solace in “safe investments” like annuities but we fail to realize that we are likely trading away our financial future for a slice of comfort today.
Perhaps the best place to start is with an understanding that everything has a risk. There are no riskless investments. Sure, marketers of financial products persuade investors that their products have certain attributes that convey safety, but risk still abounds. The rub is that almost every investor needs risk in their portfolio in order to keep up with cost of living increases.
Plan for the Long Term
Some researchers estimate that the retirement shortfall for baby boomers exceeds $14 Trillion. A good portion of this shortfall can be attributed to poor financial habits, namely saving too little and spending too much. Another part, however, is attributable to investors trying to avoid risk while at the same time investing in overpriced, heavily marketed products. Financial decisions ultimately have consequences.
The financial objective shared by everyone is not to run out of money. The unknown part of that is we don’t know how long we will need the money to last. That is the financial planning dilemma: Will we be here days or decades? Since we don’t possess that information, we plan for the longer option.
Since we have the benefit of objectivity, we can steer clients away from investments that don’t help towards those that do put them on a proper path for the long term. We are happy to visit with friends, colleagues or family. Don’t keep us a secret.