If you were unsure about whether financial planning was broken, let this recent headline assure you that, indeed, it is.
Most Advisors Call Double-Dip Recession Unlikely But Clients Still Cautious
While 52% of registered investment advisors say a double-dip recession in the next six months is unlikely, their clients are nonetheless looking to reduce expense, cut back on discretionary spending and make more conservative investment choices, according to Charles Schwab’s 10th semi-annual Independent Outlook Study released Wednesday.
As the song goes, “Feelings . . . nothing more than . . . feelings.” This blurb has at least three problems that jump right out at me:
1. Financial Planners read this magazine for the most part, and this is the most widely distributed planner periodical available. This is the “education and research” that is being given us by the mainstream directed media sources. Financial advisors are being conditioned regularly that their emotional answers to surveys are worth their time. If 52% of planners thought that we WOULD go into a double dip recession, would it make the possibility any more real? No. Here is something you can know for sure: as a whole, the financial planning community is among the least well-read and educated bunch of commissioned sales people around. Few exceptions exist. I, of course, am one of those exceptions. 🙂
2. Financial Planners are likely to be so emotionally tied to the answer to that question that they are unable to give an unbiased one. Even if the results of this little survey mattered in the least, most financial planners would not know what to do if the economy went into a double dip recession, whatever that is (see note below*). They would lose most of their clients. I know of one planner who told me that he had to promise that the market would not go into a double-dip recession just to keep the clients he came out of 2009 with. I’d hate to be him after the news at 1am. No sleep in that house. Another planner told me that he used the last market dip to have a record year in annuity sales. “Protected” all of his clients he said. Then he said, “Evan, never let a good recession go to waste.” True stories. Fact is, most planners read this and think about their personal paycheck and how to protect it. Most “research and education” done by planners is with the primary purpose of keeping their clients rather than improving their clients’ investor experience and return.
3. Let’s talk about the investors for a minute. Most of the clients of these planners are doing a couple of things right and one thing wrong according to the quotation above. They are rightly looking at their current plan and spending patterns and finding ways to spend less and save more. This is good. If you want to make sure that a recession has lasting positive impact, you want to do those two things. Spend less and save more. But the other thing that planners are saying of their clients is that they are seeking more conservative options. Not the best choice. Let me tell you another true story to explain.
For the past five years I’ve been working with a couple who have long ago determined that they would be retiring in 2015 or 2016. This is right around the corner for them. We have them diversified appropriately in roughly a 70/30 fund and at around this time, had the market been up, we would be slowly reducing their stock exposure so that they could retire at around the 60/40 mark. But now we have the market decline of 2008 and another small dip so far in 2011. What do we do? Do we panic and “protect” the money and move to the more conservative account now? No way.
Why would he want to spend his last most productive three or four years as a contributing investor “making more conservative investment choices?” All his life he’s been saving and saving. Five years ago he purchased the stock market when the DJI was over 14,000. Now that is under 11,000 why would he reduce his stock purchases? He’s buying one-and-a-half times the shares per dollar than he was five years ago! Our advice, which he is taking, is to increase his contributions and keep the fund at the higher stock exposure as long as the prices are low. This is not market timing, it’s just smart.
Investors, hear this true message: Low prices are temporary; in general, 3 years of out of 4, the stock market rises. These low prices will not be here forever. You NEED to capitalize on them while they are here.
Recommended actions for every investor:
1. Take a few minutes tonight and make a list of a few things with which you can do without in the coming months. Then save a little more into your investment account. Open a ROTH if you don’t have one.
2. Make plans to attend the investor coaching event on October 26th. Call my office to register.
Dollars invested today will get a far better return over time than dollars invested four or five years ago. And the financial planning industry wants to talk about their feelings?
I say feelings shmeelings. Let’s invest now while the buying is good!
*What is a double dip recession and who gets to call it? I know a lot of folks who would say we are already in it, or that we never came out of the first one. Terms like “double dip” get marketing traction and start to take on meaning because it panders to our emotions. It’s a meaningless term for the most part and refers to a dip following a short recovery from a previous dip. But if double dip also means lower stock prices, then I want one.