Retirement income planning and wealth management can be challenging for those of us in Moorpark or Simi Valley – thank goodness we have television gurus in New York on Wall Street making it simple by telling us what to buy and sell – and when! After all, how would someone in 93065 know what to do when someone in Manhattan has all the answers?
Does working on a trading desk really make someone a qualified financial planner? Some of them may think so. I’ve even met a few individuals who think they know how to make market calls. I know some who’ve actually lost their homes and life savings, too.
One couple I met with some time ago provides an interesting case-in-point: They got hurt financially during the big market melt-down in early 2009. They freely admit it. They also admit they have no formal written financial plan; but, the wife likes timing and trading the market, and is convinced she’s good at it – although I seriously doubt neither of them really know how to compute dollar-weighted returns. While I didn’t mention it, I couldn’t help notice the contradiction: If she’s so good at picking stocks and timing markets, why did they lose so much during the market decline? Another good question might have been equally enlightening: What does she know that Warren Buffett doesn’t? Now, this couple would be regarded as just above the “mass-affluent” – at least they were when I met them. But, what are their odds, really?
Right about here, a little common sense comes in handy – and it doesn’t really require a lengthy analysis. After all, if Warren Buffett doesn’t try to time the markets, why should we?
This little graphic from 2009 makes a simple, easy to understand point:
Do you think she, you, or I could pick the right 34 days out of 252 trading days? Many will point out that you don’t have to perfect! You need to be right only 51% of the time! If you can be right on just over half your calls, you’d be ahead! Using the broad S&P500 index as a proxy for the broad market, let’s take a look:
As you can see, you’d have to have been right on 71% of your calls over an 88-year period just to end-up tied with the market. And, as the prior short-term graphic indicates, it’s even tougher to do it over shorter periods.
It’s good to remember, investing is about time, not timing.
A Financial Conversation Checklist (does not require registration)
IFG's Financial Resources website.
Follow Jim on Twitter: @JimLorenzen
Jim on LinkedIn
Become an IFG client! Don’t play phone-tag; schedule your 15-minute introductory phone call using this convenient scheduler!
Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.
The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.