Making Money or Making Mistakes eBook ● Marwieh Advisory Services, LLC © 2019
Most 401K Plans, for example, may have 50 or so investment choices and a large range of generic portfolio allocation options to help them manage their risk and diversification. It is simple to set up, yet it leaves the burden of performance management on the shoulders of the investor. Investors on the other hand, are lead to believe that traditional asset allocation is their holy grail to protecting their investment accounts against Stock Market Volatility since it spreads their risk amongst multiple asset classes. The general process is that once assets have been committed to a plan, participants then: 1) Elect their ongoing contribution levels, 2) Chose an allocation strategy (based on Risk Tolerance); 3) Re-balance their accounts once a year; and 4) Investor manages performance (401, IRA, 403b, 457, Roth IRA). The goals here is to maximize their plans to achieve their desired retirement results! There are serious problems with this process… The stock market crashes over the last 13 years of 40% (twice) has highlighted several key holes inherent in qualified plans such as 401k, 529 Plans, 403b, and 457k namely: Investors Lack Time – We are all busy managing our families and work lives. We just don’t have enough time in the day to also be able to spend the necessary time required to master balancing our 401k growth against market risk. Investors Lack in-depth Experience – The majority of plan participants does not have the necessary knowledge and experience to effectively manage their retirement accounts. Yes, individuals will quickly seek help from a medical expert to manage their failing health while choosing to perform self financial surgery rather than seek help from a qualified financial professional. This also manifest itself in the mediocre performances that individual 401k accounts have experienced over the past 20 years (2% to 3% annual ROR) because most individual investment choices are not based on a disciplined strategy to guide their entry and exit from the market but instead decisions are emotionally based, as well as based on tips from friends and family. Investors Are Encouraged to Buy & Hold – Did your advisor ever tell you during the market Crash of 2000 – 2002, and again during the 2008, 2009, and 2010 market crash… Do Not Panic, the market will rebound. According to Martin D. Weiss, President of Weiss Research & Editor of Safe Money Newsletter, Buy & Hold – “Primarily, it’s a sales pitch disguised as a piece of advice. Brokers have a strong incentive to stop you from selling”. He goes on to say… “I believe that buy and hold is a disaster”. Buy and Hold is also responsible for promoting laziness amongst advisors as well as their clients since they only have to re-balance annually thereby leaving their accounts pretty much on auto pilot. Investors Have No Strategy to Move to Safety – Most portfolios are typically designed with maximizing growth opportunities (upward capture) while completely ignoring the other side of the coin – the protection against market losses (downward capture) or simply going to safety. Imaging having the option of going to CASH while the market drops or consider a strategy that is pre-built with low downward capture in mind. (Use Fund A and Fund B Chart to illustrate). The real issue that is sometimes lost is not about how much you can grow your assets, but how much your assets will capture on the downside when the market goes down which we all can expect to happen from time to time. What has been the result from Lack of Active Management? The resounding answer … It has devastated many investor accounts, forcing many retirees to return to work and those planning to retire to extend their working years. You only need to look back at your portfolio performances over the last 13 years to become clear about this cycle. Investors need to consider doing two key things to change this cycle: Look at their investment health the same way they view their physical health. When you get ill, you automatically would go to the doctor – at times even seeking 2nd and 3rd opinions. I know NO one that would do surgery on themselves, but this is exactly what most individuals try to do when it comes to their investments. Get rid of what we term “Misplaced Loyalty Syndrome”. Most individuals for some reasons have tremendous loyalty to their advisors even at their own expense. An investor loyalty is to their family and their financial well-being and their advisor is the medium through which they can accomplish their financial goals. This is where Marwieh advisory comes in by helping you to lift the load off your shoulder while providing you sound professional advice and that actively manages all your investments in close consultation with you. Remember, “You are already comfortable delegating many other aspects of your life, letting your financial well being be another one of those items you delegate is a step in the right direction”. Thanks for reading Part 6 of our eBook Series, "Is Your 401k/IRA Plan Making Money or Making Mistakes" . I hope it has been insightful and educational. Please stay tuned for the next chapter in our evolving dialog, "Is your 401k/IRA plan making money or making mistakes"; Part 7- Myth of Stock Market Recovery In the mean time, should you have any questions or concerns, please do not hesitate to contact me directly at (512) 730-0871 Until next time, Happy Journey to Financial Empowerment.
Is Your 401k/IRA Making Money or Making Mistakes?
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06 - lack of active management
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Until next time, Happy Journey to Financial Empowerment.
