When would you like to find that out?

I advise investors and fiduciaries of all types and of ages ranging from 13 to 91. What I almost always find as I get into the investing conversation with folks is a disconnect in one or two areas. Either the way they think about investing and how to do that successfully is wrong, or their understanding is correct but their thinking is not in line with their advisors. We’ll get back to the three Myths of investing that are destroying returns and investor peace of mind next week, but I thought I’d take this post to bring home this idea.

 Consider which of these three categories you fill now or might in the future. Then keep an eye out for the following three posts to explain the myths.

Fiduciaries – associations, trustees, 401k plan administrators:

There are a number different types of fiduciaries ranging from adult children managing the wealth of aging parents to large associations that hold investment reserves for the benefit of its members to 401k plans held for the benefit of employees. The fiduciaries are individuals, board members, and plan administrators (usually the organization’s CEO and CFO). We tend to assume that there are common protective structures in place to make sure that nothing goes wrong, but we don’t often think of the real people involved in the decision-making process – the human element.

The beliefs about investing that these individuals take with them into board meetings and advisory consultations will directly impact the outcomes of the investments in their charge. Do those who manage money on your behalf understand investing as well as you do? If you are a fiduciary, do you know what your investment philosophy is, and does it match up with those who are giving you advice as you hold money in trust for others? If there are myths being held as truth in these important conversations, whose responsibility is it to know what they are and to make sure that their effects are not present in your portfolios?

Individuals or Couples in their 50’s and 60’s:

You are clutch players at a point in the game where there is little room for mistakes. You have what you have at this point, and although you may wish you would have saved more, retirement is right around the corner. What is the cost to you at this stage for not understanding how the game is played on Wall Street? What do you need to know now so that you can both protect what you have and profit most from your remaining years? Well, we should start with the truth.

As you gather information about how to turn your assets into income, you will be faced with the facts, according to DALBAR, that the average investor gets 4.35% return on their investments while the market for the same time period achieves over 9% (as measured by the S&P 500). Even worse for some of you is that 4.35% is more than you achieved in your 401k during the many years you’ve been investing. As a result of these realities, many of you will decide to lock your investments into an annuity paying an even lower rate for the rest of your life with the assurance and promise that your income amount will never go down. Never has there been a worse time to make the annuity decision given the rates paid by annuities in a market like this one.

Will you find out the rest of the story?  Have you achieved market returns up until now? If not, why not? Are you willing to say that you did some things wrong, or that you did not understand investing well enough or how markets worked? Doing this one humble thing, asking these hard questions could add millions to your retirement spending over the next decades. Don’t wait any longer to find out the truth.

Households in their 20’s or 30’s:

What young investors need to learn most is patience and the time value of money. But even patience applied wrongly will yield little more than jaded frustration after valuable time has passed. I have met countless young people who are trying to “hit one out of the park” on their first at bats as investors. What they need to understand is that time and the market will do all the heavy lifting if they would simply allow it to do so. I am almost begging my clients who have adult and young adult children to get them involved at a young age with what we are doing here. Help them see that the stock market games they played in high school were more like gambling and had almost nothing to do with investing. If your kid can add and subtract, he can understand enough about investing to do well – Take your kids to these events with you!

The compounded problem for folks in this age category is that they are not “worth much” to financial advisors. Since they don’t have a balance of six figures or more, advisors can’t make working with them “scale” as they put it in my industry. As a result, these clients are sold on the idea of expensive whole-life insurance products or front loaded investment products – something that will move the income needle for the advisor in that year while the advisor waits for the next “big deal” to come along.

There would be a lot more “big deals” out there if clients and advisors would treat young investors like real investors much earlier.

So, whether you are a fiduciary overseeing a 401k plan worth millions or a 19-year-old kid with $1000 in a Roth IRA, you’re small potatoes compared to the market’s $trillions, but you’re a big deal to me.