Retirement Guys: Fools GoldWritten by Nolan Baker Mark Clair | | firstname.lastname@example.org
One thing I, Nolan, look forward to each year is a family vacation together. This year, we decided to take a cruise to Alaska. Basically no internet, no cell phones, no technology, just family time watching nature, playing card games, and spending time together. It was a once in a lifetime trip.
In planning out our trip to Alaska, we had to decide what excursion to take on land. One was in Juneau, Alaska where we had the opportunity to visit an old goldmine called AJ’s mine. We not only got to explore a real working mine from the early 1900’s, we also got a chance to pan for gold. It was probably the highlight of our trip for our 7 and 11 year olds as they just knew we would strike it rich. Our kids had bought into the hype of the TV shows Gold Rush and Bering Sea Gold and just knew striking it rich was going to be easy.
The recent volatility in the stock market will probably lead to someone trying to sell you the latest hype. Remember, buying into the hype from people who have a vested interest in pushing a particular product is usually an investment mistake. Stay disciplined and develop a process to avoid buying into the hype.
The examples are almost endless. Five years ago, almost every other media ad was to buy gold and precious metals. Gold has now fallen from a high of almost $2,000 an ounce to now around $1,200. Even commercials still promote that hype even though the US dollar and our Country have gotten stronger. Some said buying the Iraq dinar will lead to great riches. That has yet to pan out. There is no shortage of advice on how you should invest your money today.
Five years after the crash in the stock market, the view out the rear view window can also get foggy. I am not suggesting a crash is coming tomorrow in the markets. In fact, if you have followed our advice since then, one thing you will notice is we don’t try and predict the stock market direction. Instead we try and give what we believe to be sound advice as to how to stay focused on your individual objectives and ignore the noise. Before changing an investment plan, here are a few questions to ask to avoid investing in the current hype, or what we call fools gold.
Why did I make this investment? Is this still the objective?
Income is an objective for those close to or at retirement time. Income in retirement is broken down into reliable income and variable income. Reliable income sources are pensions, social security, and annuity payments. If a person has a gap in income needs, it is often filled with investment income. If an investor picks a portfolio that fills that income gap and leaves some room for what if’s and inflation, then the daily performance of the stock and bond market should be less important.
Is there a better option to reach the objective? What is the risk involved?
If performance alone isn’t the reason to change, why should an investor change? To me it often comes down to finding a better option to reach the objective. That could be lower cost, more predictable income, or less risk. Before making a change, an investor should understand those three outcomes combined together, not just one alone. Sure, after a major market downturn switching to a safe investment will lower risk, but does it come at a cost and a loss of income? Or an investment with higher performance might seem attractive, but does it increase the risk and lower the predictable income. So before a change is made, investors should review the costs, cash flow, and risk. One potential increase in one category for a loss in two other categories may not make sense.
Some things require flawless performance, the military, surgeons, pilots. Failure can be catastrophic. Investing is often not that case.
We should all expect our investment approach will be wrong at some point when it comes to performance. Everyone is wrong at some point in this field. So think of investing like baseball. Mark and his team won the championship this year, but certainly didn’t bat 1.000 every time. Remember to enjoy the game and learn from past mistakes that resulted from “fool’s gold.”
For more information about The Retirement Guys, tune in every Saturday at 1 PM on 1370 WSPD or visit “http://www.retirementguyradio.com.” Securities and Investment Advisory Services are offered through NEXT Financial Group Inc., Member FINRA / SIPC. NEXT Financial Group, Inc. does not provide tax or legal advice. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537. 419-842-0550