When the investing gets tough, the tough get an adviser
By Dave Young
Successful investing is tough. Over the long term, it may be one of the toughest tasks you take on.
It’s not about physical toughness. According to a story in USA Today, 60 percent of retired NBA players are broke within five years. The NFL is worse — 78 percent of retired players are in the poorhouse just two years after retirement.
Athletes aren’t the only ones with money issues. The problem seems to show up anytime people come into large sums of money without prior investment experience.
Studies show that the majority of widows who receive life insurance proceed to lose the money within three years. Lottery winners carry the same characteristic with most losing their winnings within a few years. Because of difficult markets and poor investment strategies, over the last 10 years, many retirees have lost more than half of their retirement savings.
Why is investing so tough? Here are seven reasons:
1. It really is that difficult
Certain types of investing can be almost impossible. Regardless of what the infomercials promise, a small percentage of options, futures or currency traders actually succeed. While the potential is there, the odds of success are totally stacked against you.
Invest in real estate, business or stock scams and you will have no chance of getting your money back. They seem like a great idea at the time, but without experience, scams are difficult to identify.
3. It’s out of your control
Legitimate real estate or business projects can go sour because of a bad market, poor management, competitive factors or other issues beyond your control.
4. Difficult markets
If you invested at the peak of a stock or real estate bubble, like 1999 or 2007, you are still waiting for your account to get back to even. Unfortunately, markets are always difficult. No one rings a bell when to buy or sell. Human nature drives most investors to buy when prices are high and sell when they are low.
5. Low–paying guaranteed products
Bank CDs, savings accounts and annuities induce buyers by promises of safety and security. The only real guarantee is that your returns will be so low you’re guaranteed your earnings will not keep up with inflation and taxes, ultimately destroying your purchasing power.
6. Bad advice
Unfortunately, many “advisers” know little more than the people they are advising.
7. Bad products
A lot of investment products sold by salespeople are not good for investors. Many are expensive and full of hidden costs. Some even limit your upside. Often, they are structured to benefit the company selling them.
So what should an investor do? First, embrace the fact that investing is difficult. Take it seriously. Recognize little is taught about investing in our educational system. Be realistic about your level of investment proficiency. Understand taking it lightly can be hazardous to your financial future.
Second, educate yourself about investing. Learn the basics. This does take time. Realize many investment theories contradict each other. The more you read, the more you realize how much more there is to know.
Third, find an adviser you can really trust. If you really don’t have the time, resources or expertise to manage your own money, then work with an exceptional adviser. At a minimum, you want someone who is a fiduciary, who has at least 10 years of experience and who can show you their actual 10-year track record.
On www.paragonwealth.com, we provide a free, educational download titled, “How to Select a Financial Adviser.” I highly recommend you download and use it as a reference.
The bottom line is successful investing really is tough. It is competitive. To succeed requires knowledge, experience, mental toughness and discipline.