With few exceptions, the individuals that come to us seeking advice are stressed out. Some of this stress is owed to our general cultural taboo of talking about money issues. An even larger part, however, is generated physiologically and is simply part of how our brains process information.
Successful individuals have many questions about financial planning, investing, and retirement.
Here are a few that we hear often and my short, perhaps uncommon answers.
1. Can I “beat the market”?
No, except by chance (luck).
2. How much of my earnings do I need to save/invest?
Very likely more than you are currently. I can count on one hand the number of pre-retirement clients who are truly saving enough.
3. Do I have to invest in the stock market?
Yes, if you want to retire and sustain your lifestyle beyond your working years. Simply put, stocks have been (for more than 90 years anyway) the most reliable way to offset increasing living costs (inflation).
4. Can I get out of the market when things are unsure?
No- not if you want to be financially secure. Trying to time the market is a fool’s errand. The broad stock market is positive about 54% of the months but 75% of the years. The key is to have enough in cash and bonds to ride out the inevitable temporary pull backs, some of which last last a couple years or longer.
5. Isn’t real estate a safer investment than stocks?
No- the data for most timeframes tell us differently. Residential real estate provides enjoyment and utility but the long term returns adjusted for inflation are very small.
6. What about market indexed annuities? Are these a good idea?
No, no, and again no. The costs and structure overwhelm any positives. Everything the insurance company can invest in, you can do as well, without the heavy sales and marketing costs.
7. What percentage of my pre-retirement income will I need in retirement?
Likely a far higher percentage than you think. While this varies depending on a multitude of factors including age, health, lifestyle, and debt to name a few, 80% of pre-retirement income is a good starting point.
8. I like to be in control. Can I control investment outcomes?
No- investment control is an illusion. You can influence outcomes by focusing on your inputs: how much you save, how the investments are allocated, and how well you behave (staying in your seat).
9. Can’t I just manage my financial life on my own?
Yes indeed…it’s just impossible to manage your emotions and inherent behavioral biases. Investing is fairly simple, but incredibly difficult all at once.
10. I don’t like change. Will I need to change anything in order to move along the path to financial security?
Yes, yes, and yes again. The status quo is a huge barrier to financial health. Helping move clients away from the “comforts of inertia” into the uncomfortable space where growth occurs is our raison d etre.
11. What is the Number One problem most financial advisors see?
One of our most important roles is to help reduce complexity so that good decisions can be made.
Questions abound in financial planning and answers to these questions should be firmly rooted in reality. Finding your path toward a secure retirement is key. Start there. Ready for a real conversation?
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