This article will be featured in an upcoming issue of Fortune Magazine!
As we cruise into the second half of the second decade of the new millennium, American investors in or approaching retirement, find themselves in a pickle. The real threat of future inflation and a faulty economy with a bubble in the markets, will make it increasingly difficult for this generation to live out their freedom years with peace of mind.
In working with clients, the question that should be on everyone’s mind and should be asked of all financial advisors, is “what are you doing to protect my money”. Why are the so called financial professionals telling clients to “hang in there”… “buy this hot fund or that hot fund”. How quickly we forget. We are only a handful of years past the financial crisis that sank markets by nearly 50%. The Great Recession and crisis is behind us, but the slow abnormal economy is lingering. But the stock market, oh no, that is all good. The individual investor has come roaring back and is making money again. Beware! Is the market going to go up forever? Is volatility going to remain low and confidence high forever? NO! The easy money policy of the Fed and the massive quantitative easing programs have put equity prices on a rocket. And the average retiree is falling for the Wall Street lure with no regard to potential consequences.
4 Ideas to Grow and Protect Your Nest Egg
- Make steady performance your goal. The goal to investing for retirement should be steady, long-term growth with minimal disruption to a smooth existence. The process of the professional money manager is vastly different than the individual investor when pursuing this goal. The professional automatically makes smart decisions by using a mechanical, rules based approach. The professional know, through experience, that emotion must be avoided.
- Use active management and true diversification. It has been proven, time and again, that asset allocation creates investing performance. True diversification does not mean owning 20-25 different mutual funds. It is also not owning 15 stocks instead of 3. Successful diversification is created with a focus on asset class management. Simply, use your mechanical, rules based approach to be in strong asset classes, while avoiding weak asset classes. Active management implies a rebalance when necessary and the avoidance of the “just hang in there” buy and hold mantra. Strive to be active with minimal trading, by managing the asset class mix. The asset class mix should be developed using multiple world-class, institutional style money managers.
- Keep it simple. It seems that over the decades the Wall Street Gang has intentionally made the investing landscape more difficult. Retirement investing and accumulation of wealth are simple. It is just not easy. There is a difference. Building a solid investment strategy, at any age, needs to be simple. In a properly built portfolio, with a goal of steady performance, that is truly diversified, need only have 10-20 holdings. Adding more funds, or stocks, or ETFs does not necessarily improve performance and it is certainly not simple. If you keep it simple you will be able to answer two simple questions at any time: 1). What do I have? And 2). How am I doing? In fact, we all live in the technology age and you can implement several automated tools to give you 24/7 information about your financial life.
- Keep costs low (fair). As consumers, we all want good value. I hate being overcharged for anything. But, I also appreciate and want the highest quality, for the fairest price I can find in the marketplace. No matter if you utilize the services of a professional advisor or you do it yourself, you must keep an eye on cost. Competition is fierce and in many instances, the absolute lowest cost may not be the best value. Keep costs fair and expect high value.
So, how well are you doing in these key areas? I know it’s a very forward question, but the truth is many investors are not doing well at all. Sure, the market is roaring and everyone feels elated and excited when they open their account statement. Be careful here.
One tool that we use in our practice is the revolutionary monitoring software, called AssetLock. You probably have not heard of it, as only a select few independent advisory firms across the country have licenses to use it. AssetLock is a proprietary monitoring system that places a floor under your account values and moves higher as your account reaches every new high level. For example, you don’t want, nor can you, afford to lose more the 10% in your IRA. Establish your AssetLock Value 10% below your deposit amount. As the account grows, the value goes up, just like the account value. Thus, protecting gains each and every day. This is not a stop loss or hedging strategy. It is a stop losing strategy, a tool that keeps you emotionally strong by allowing you the peace of mind that a major downward move in the market will not wipe out years of gains.
Get serious about growing and protecting your assets. You worked hard and earned the money, now look for smart ways to keep it.