Many people of working age are not comfortable with how their financial plans for retirement are advancing. A link to the article that spurred my own reflection on the topic appears at the end of the article. What follows are comments from my own perspective gleaned from working with clients on such plans for the last several years.
First, people’s financial preparedness through the US educational system is terrible at every level. Unless students take a business elective they are likely to have zero exposure to financial training, and when they do, the guidance and curriculum is highly skewed toward the banking industry and Wall Street. These concepts are nigh unto 20 years out of date. It isn’t your father’s financial landscape out there anymore! Many people who haven’t made focused efforts to learn for themselves lack the financial understanding to have a serious conversation about planning for their future. Most of my presentation time with new clients is focused on education and current events so that when we discuss their goals and plans, we’re both speaking the same language.
Our world-within-reach use of smart phones has most of us addicted to information-age access to almost any topic. However, people have become so accustomed to instant responses and information at their fingertips that their attention span isn’t any longer than 5 minutes. Video ads have an average watch length of about 40 seconds before viewers bounce to something more entertaining. Everything is a quick fix. Well, your financial future is worth spending a little more time on, which I do with my clients. Getting people’s attention so that you can help them is a challenge in itself. I’ve relegated the most difficult but key concepts to animated color graphics presented on my tablet. The animated color graphics hold attention better while I’m explaining concepts and how clients can benefit from them.
Most financial planners net trade commissions and management fees from mutual funds in which investment decisions are made by fund managers, not financial “advisors”. Recently I helped a close friend make some trades in their broker account and the broker fees were a percentage of the trade. While 2% doesn’t sound like much, when you’re are acquiring portfolio assets in the thousands of dollars, 2% adds up! Frankly, when inexperienced traders see this kind of expense, they become very wary of moving on anything, like a deer in the headlights. If you’re afraid to move on good information, you’ll be equally if not more afraid to move to another broker that might treat you more fairly when you are making your own investment choices.
Many financial professionals lack the educational skills necessary to explain the complex dynamics of modern financial contracts that would benefit a client. Without those teaching skills, those options aren’t presented, or clients aren’t convinced of their usefulness harboring unanswered questions and an uneasy state of confusion. The result: investors don’t always employ the most efficient and effective financial solutions, but the ones they can most easily understand.
Portfolio designs have become very formulaic according to company policy, so many advisors aren’t really advising or stock picking unless you’ve selected your advisor specifically for their managed-money skills. Market volatility and the looming specter of another major market downturn is underpinning the current market like a rotting, termite infested foundation. Multi-billion dollar holdings push valuations around in pump-and-dump fashion. Electronic trading algorithms that move markets up and down in micro-second trades can cascade a market down in seconds. The market is infused with instability waiting for the inevitable to happen. Where else is there to turn to for yield when the banking industry and bond rates don’t even keep up with the real rate of inflation?
Counting the valuation of the market in smaller pieces (devalued dollars) doesn’t yield more value, just bigger numbers. Are you looking at record market highs? Only if you’re counting in devalued dollars. When you measure in fixed value assets like barrels of oil or ounces of gold, real market value tells a very different story. Inflation is poised for a serious upturn as nations begin dumping US Treasuries in favor of physical gold holdings. Many nations have repatriated their gold out of the New York Federal Reserve, meaning they have moved it back to their own soil. Russia recently dumped half of its US Treasury debt. Japan, China, and other nations are also dumping US debt. Several nations have prohibited trade in US dollars and are seeking a replacement for the US Swift system of inter-bank debt settlement. The rats are fleeing the ship.
Baked in the Cake:
The common retirement solutions in US Government sponsored “qualified for tax deferral” accounts of 401(k) and IRA’s have multiple and egregious restrictions for what they allow people to believe is “their wealth”. “Of course it’s yours!” … unless you want to use your money before your 59-1/2 for something other than education expenses, your first home, or certain approved medical expenses. So, its really NOT your money because you haven’t paid taxes on it yet. Taxes are due when you access the funds, with a 10% added penalty if you are not yet 59-1/2, and with a massive 50% penalty if you are 70-1/2 and haven’t taken your “required minimum distribution” (RMD) for the year.
The “Qualified-for-tax-deferral” system is soaked with unfriendly client restrictions, penalties, and lack of liquidity. This wealth system restricts your access and accumulation through annual limits. They resolve to tax you at earned income rates after your kids are grown and your mortgage is nearly if not totally paid off. Many of your biggest tax breaks are gone!
People are busy and they don’t want to spend time after working all day trying to navigate the minefield of government regulation and restriction to understand what they are and are not permitted to do with the money that they earned. No wonder people are uncertain and confused.
Many of the accounts that I work with are “fire and forget” simple. They are geared for long-term growth and are not connected directly to the market. They have guarantees that help alleviate stress of market watching and provide returns that are at times enviable. In 2008 when people were lamenting over losing 46% of their life savings, I could have charged an arm and a leg for a zero percent, no market loss option; and my wealth strategies clients still don’t pay me anything for my help! While everyone else had lost nearly half of their retirement, my clients would have lost nothing and would have resumed building as soon as the market started it’s bounce from the bottom. I design and offer valuable, safe, and effective alternatives for growing wealth in the current environment.
My wealth strategies clients don’t pay me. Someone else pays me to find, educate, and help my prospects and clients. Educational skills are valuable, despite the US education system not paying our teachers nearly enough for one of the most important jobs in the world! When you can help someone understand complex information and are available when they need you, that’s valuable to both the client and to the companies that offer to serve the clients. When you’re growing your retirement or family wealth over decades, the costs in management fees can hamper your compound growth. When you aren’t paying management fees, more of your money goes to work for you!
When my more risk-tolerant clients get to the point where they start looking for other investment options, I help them find information in areas that interest them. While I avoid making “recommendations” on options outside my official area of expertise, I do have contacts in other industries and I’ll refer clients to those who I know will treat them with the same care and respect that I do. I’m an investor myself and I run my own portfolio. While my personal interests are “Buffet-like” and limited as to sectors in regards to focus, I can usually steer a client to valuable sources of information or qualified help. Discussions on those topics after that point are between friends, hopefully over a cup of coffee; especially if it’s early!