Ready to Throw Caution to the Wind?

Ready to Throw Caution to the Wind?

True story: I had a friend who was such an abysmal investor he actually started investing against his own judgment. He’d plow through masses of data, read every piece of expert investment advice he could get his hands on, and make his picks. If his research and intuition told him to sell energy stocks, he’d invest a bundle in the sector. When he thought he was looking at a stock that was a “sure thing,” he’d sell. It was a bit crazy, but it paid off. Why? Because the one thing he knew for certain is that what he had been doing before wasn’t working, so he did the exact opposite, and his portfolio surged.

Just do something different
 

At the moment, it seems more than a few people are wondering if the Fed should think about using a similar tactic. Interest rates have been at historic lows ever since 2008 when rates plummeted to zero in an effort to salvage the tanking economy. And while a lot has changed in the US economy, the Fed has stuck by its old policy that rates shouldn’t be raised until core inflation hits the magical number of 2%.

But after a single rate hike in late 2015, Janet Yellen et al decided last week to sit tight. Again. This time the reason was Brexit, but it seems like there’s always something threatening the US economy. Brexit. China. War. And with a constant barrage of global events, it seems unlikely the US will exceed the 2% core inflation point any time soon—much less remain consistently above it.

Don’t get me wrong. I don’t presume to have all the answers. I’ve heard smart people on both sides of the fence argue for and against a rate hike, and both camps have very valid points. There’s no easy answer. So maybe the Fed should, like my friend, throw caution to the wind and just do something different. Just for the heck of it. Just maybe.

Then again, maybe they should look before they leap.

Setting Guideposts Creates Confidence for Advisors and their Clients
 

Here’s the thing: in today’s volatile environment, it’s easy to get caught up in the frenzy. There’s too much news. Too much information. Too much input to make smart, sensible decisions. For advisors, it begs the question: how do you manage your portfolios in the midst of unprecedented volatility? How do you manage the unmanageable?

The best-selling trading book of all time, Trading for a Living by Alexander Elder is a great place to start. (The updated version, The New Trading for a Living, was released in 2014.) Of course, there are many methods out there, but all of them are designed to help advisors and investors develop a disciplined approach to investing that removes the psychological and mechanical barriers to success.

As we all know, one of the biggest of those barriers is reacting to the market. You’ve seen it with clients: as soon as the market dips, the phones start ringing with clients wanting to jump ship—right at the worst time to sell. When the market peaks, everyone wants to jump on board—right at the worst time to buy.

It’s an easy cycle to spot when someone else is making the blunder. But unless you’re following specific guidelines and have created your own guideposts that drive not only buy/sell decisions, but the myriad other decisions you have to make on a daily basis, how can you be certain you’re not blundering yourself? Trading for a Living is a great read for anyone who wants to develop a calm, disciplined approach to the markets because it focuses on managing risk and managing your own responses to market volatility and other events, and it provides clear pathways for both.

Perhaps the most valuable outcome of having unshakeable guideposts in place is not confidence in your own decisions (which is wonderful in itself!), but the confidence of your clients. The next time a client comes to you saying that “it’s time to do something,” you can remind them you already did do something. You jointly agreed to a strategy and guideposts that you’ll use to grow their wealth over the long run. You balanced their tolerance for risk and reward. And now they need to trust those decisions will pay off.

Even if Janet Yellen trusted my advice about the best next step for interest rates, I don’t know what I’d recommend. Perhaps trying something new is the right move. Perhaps it would be an economic disaster. What I do know is that creating and following concrete guideposts is the best possible way to manage uncertainty.

Bill Acheson
Investing in Life
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Bill Acheson is Chief Financial Officer of GWG Holdings, Inc. Bill is ideally suited to inform financial professionals and investors about specialty finance, alternative inves ... Click for full bio

Retirement Planning Has Its Limits: How to Prepare

Retirement Planning Has Its Limits: How to Prepare

Retirement planning is one of the issues that commonly leads clients to consult financial advisers. One of its essential aspects is creating a plan to save and invest in order to provide a comfortable retirement income. Ideally, this starts many years ahead of retirement, even as early as your first paycheck.

As retirement comes closer, planning for it expands to take in a host of other considerations, such as deciding when to retire, where to live, and what kind of lifestyle you hope to have. When retirement becomes a reality, the focus shifts to carrying out the plan.

All of this planning is crucial. Yet, for both financial advisers and clients, it's good to keep in mind that planning has its limits. In the post-retirement years, it may be helpful to think in terms of preparing for old age rather than planning for it.

The older we get, the more important this distinction between planning and preparing becomes. Too many life-changing things can happen without regard to our best-laid plans. Often they occur unexpectedly, resulting in emergency situations where urgent decisions have to be made. A stroke or a fall, a diagnosis of terminal illness, a broken hip that leaves someone unable to go back to independent living—and suddenly, right now, the family needs to find an assisted living facility, arrange for live-in help, or sell a home.

What are some of the ways to prepare for these contingencies?

  • Explore housing options well ahead of time. Find out what assisted living, home care, and nursing home services and facilities are available where you live and whether they have waiting lists. Have family conversations about possibilities like relocating or sharing households.
  • Research the financial side of these options. Investigate the cost of hiring help at home, assisted living facilities, and nursing care centers. Find out what is and is not covered by Medicare and long-term care insurance. For example, people are sometimes surprised to learn that Medicare does not pay for nursing home care other than short-term medical stays.
  • Designate someone to take over decision-making, and do the paperwork. Execute documents like a living will, medical power of attorney, and contingent power of attorney. Update them as necessary, and give copies to your doctors, your financial planner, and appropriate family members.  
  • Start relatively early to downsize. Well before you're ready to let go of possessions or move into smaller housing, start considering what to do with your "stuff." Focus on the decisions rather than the distribution. There's no need to get rid of possessions prematurely, but decide what you want to do with them—and put in writing. Do this while it's still your choice, rather than something your family members do while you're in the hospital or nursing home
  • Do your best to practice flexibility and acceptance. No matter how strongly you want to live in your own home until the end of your life, for example, it may not be possible. The physical limitations of aging can limit our choices, and even the best options available may not be what we would like them to be. It is a profound gift to yourself and your family members to accept these realities with as much grace as you can muster.
     

Finally, please don't underestimate the importance of planning financially for retirement. Because the bottom line is that you can't plan for all the things that might happen as you age, but you can prepare to deal with them. One of the most useful tools to cope with those contingencies is having enough money.

Rick Kahler
Advisor
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Rick Kahler, MSFP, ChFC, CFP is a fee-only financial planner, speaker, educator, author, and columnist.  Rick is a pioneer in integrating financial planning and psycholog ... Click for full bio