Kansas City investors and many recipients of retirement income say they WANT things like “guaranteed-income” and “income for life”. While the need for a specific income stream at retirement is in fact a NEED, don’t be confused and think you WANT actively-managed mutual funds and annuities to satisfy the NEED. Consider this: if you’re a company selling a product, won’t you market it in a way that you want your target market to perceive it? The traditional industry will do all they can to make you believe this is what you WANT when in fact you don’t NEED either.
Here’s an observation of what the average investor is experiencing. Do you see yourself in any of these examples:
1) Invest with a mutual fund manager that has a good track-record and/or one that guarantees returns. Perception: the mutual fund manager (or industry) can capture returns in predictable fashion. Problem: returns come from the markets and NOT managers actively-managing (gambling and speculating) with your money. Don’t fall victim to another Madoff-like Ponzi scheme or unexpected/massive losses because of active-management strategies.
2) Invest in an annuity and give control to an insurance company. Perception: I’m too old have money in the stock markets. Problem: lose access to money in case of emergency needs; live on lower retirement income (compared to a properly diversified investment portfolio); don’t keep up with inflation without costly riders; and leave beneficiaries with a higher tax bill because they don’t get the stepped-up basis in value upon inheritance.
3) Invest into “safe-haven” products like CD’s, money-markets, bonds. Perception: I’ll move money back into the stock market when it’s doing better. Problem: don’t keep up with inflation and missing the best days in the market due to “market timing” leads to inevitable losses and frustration.
What investors NEED is 100% control and access to their money in a broadly diversified and properly allocated investment portfolio. They also need to re-balance the portfolio when the allocation is more than 5% out of balance. This insures that buying-low and selling-high happens. Over time, this enhances returns and controls the volatility of a portfolio. Owning this satisfies both WANT and NEED.
How do you know you have this? A starting point is to know the answers to the right questions. Here are a few:
1) Are you working with a financial coach or financial planner?
2) Do you have a system to measure portfolio volatility?
3) Do you know how to measure diversification in your portfolio?
4) Do you consistently and predictably achieve market returns?
5) Do you know where you fall on the Markowitz Efficient Frontier?
The traditional
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