Here’s a SmartMoney piece on how financial planning for one’s retirement years isn’t the science it was once cracked up to be.
Well, surprise surprise—not! Even I, no financial wizard, could have told you that. But that doesn’t mean I didn’t fall prey to the planner’s charms. And that makes sense, too I suppose: one has to make decisions in an unpredictable world, and it’s reassuring to think that someone is an expert in knowing the unknowable.
My financial history until recently had always been quite simple (in every sense of the word): defer to the advice and counsel of others. My own instincts were to be low-risk: if I’d had my way, none of my money would ever have been invested in the stock market, but in much more conservative holdings instead.
This notion of mine hardly even qualified for the dignity of the term “investment philosophy;” it was more a kneejerk reflection of the monetary habits of my extremely frugal and Depression-raised mother, who had always refused to touch anything connected with the stock market.
I was married for most of my adult life, however, and part of a pooled pair. As such, I decided to let my husband handle the investments. That suited both of us quite well, since he seemed to be more motivated, interested, and knowledgeable about those things. That he was also less risk-aversive didn’t bother me, because during the many years we were married we rode the stock market up and down but mostly up. His decisions had made more money for us than mine would have. I never once thought “oh, if only I’d been investing the money, how much better off we’d have been!”
By the time we got divorced a couple of years ago, there was a certain modest but not insubstantial sum that was now officially Mine rather than Ours, and for which I had to make my own decisions. My gut instinct was to revert to my gut instinct (especially now that I was older)—buy some CDs and municipal bonds and call it a day.
But I hardly had the courage of my convictions; I had seen how the strategies of others had paid off much better than mine. The financial adviser I consulted was, not surprisingly, of a less conservative mindset than I. He said I should get into the market in a way that allowed me to take advantage of what he called “growth;” diversification would protect me.
And so it was that I listened to him, and wound up doing exactly and precisely what one isn’t supposed to do: buying high, at what in retrospect was virtually the peak of the bull market.
So far, at least, I’ve managed to resist the other side of the coin: I haven’t sold low. I haven’t sold at all, actually, just watched the value of my assets sink like a stone, in a way that my adviser had never even suggested was a remote possibility, and yet which—thanks to my mother—I always knew in my heart of hearts and brain of brains could occur (and, by the way, the adviser isn’t doing much suggesting of anything any more).
And that is why the message of articles such as the one in SmartMoney with which I began this essay no longer surprise me. The surprise is that anyone ever thought there would be a way to know the future, or that stocks would be a good idea for investing the bulk of the holdings of someone nearing retirement age who doesn’t have a huge nest-egg.
My new financial strategy is to listen politely to what people recommend, but with great skepticism (so if you want to take my advice you won’t take my advice, if you know what I mean). But for what it’s worth, here are its basic principles (this applies to the investor of a certain age; the rules would be somewhat different for the young):
(1) Buy low and sell high is the laudable goal. The trouble is that it’s extremely hard to tell when these high and low points are actually occurring. Is it just a temporary downturn, for example, or the beginning of a huge drop? Nobody knows, and anyone who tells you they do is telling you a lie. Therefore…
(2) Don’t invest any money in the stock market that you’re not willing to lose. The stock market is not a bank giving a predictable rate of return, even in times when it appears to resemble one. And furthermore…
(3) When you do invest, do so relatively short term. I’m not suggesting day-trading, but set a point ahead of time at which you will take profits and/or cut losses. And then (and this is the hard part, folks) do so.
(4) Don’t look back at all. Made a mistake? Fine—you and a gazillion others, including your financial adviser. Made some money? That’s nice, but don’t think it means you’re a wizard. Probably you just got lucky that time.
(5) If you must hire a financial adviser, get an elderly one, with sufficient memory of the past and some idea of the fact that these things run in cycles, up and down and up and down, and that when a particular portion of the cycle looks as though it will last forever it is always an illusion.
Now take two aspirin and don’t call me in the morning.