Planning Advice From True Experts

By Roger Nusbaum, AdvisorShares ETF Strategist

For this post, I wanted to look at articles from Alex Merk and Meir Statman that both cover similar ground related to practice management and retirement planning, useful for advisors and do-it-yourselfers.

Statman focuses on flaws in the risk assessment that advisors frequently perform in getting to know clients to build suitable portfolios. The first point he makes is about people who claim to have a high tolerance for risk are actually exhibiting a form of overconfidence. I have firsthand experience with this although fortunately only one time.

Years ago, this one guy hired us and he created the impression of being a real gun slinger, it felt like he needed to convey being macho (the best word I can think of) and of course he freaked out over one of those little corrections that are forgotten ten minutes after they end.

I felt like he was trying to impress us for who knows what reason. I think that more often than not this is actually more about people not really knowing themselves as opposed to overconfidence.

He makes fun, rightly so, of the question that invariably shows up on risk assessments that asks what you would do if the market crashed; sell a lot, sell a little, buy along with a couple of other answers that put the client in the position of assuming how they might react to some future event.

This really becomes about working with the client to head off emotional responses before they happen. One way is simply reminding them that at some point, there will be a bear market that will scare a lot of people. The bear market will end after some period of time and then the market will go up again. The only variable as I always say is how long it takes to play out.

Read the article, but the bottom line is that human behaviors tend to be much bigger obstacles to financial plan success than performance.

Axel talks about taking a holistic (my word not his) approach to figuring out important life and lifestyle questions which then makes it easier to find the right asset allocation which he places a lot of importance on for proper portfolio management in the context of retirement planning.

This resonates with me, I write about this sort of thing regularly.

He starts talking about staying out of debt or at least minimizing debt. Although he didn’t mention it, an easy example is driving cars for a long time with the point being that there is no car payment for many years. I’ve had a Toyota Tundra for just over ten years, right now it has about 94,000 miles on it. If I can make it 20 years with it, seems reasonable, then that would be about 17 years without a car payment. says the average monthly car payment these days is $479. What percentage would one car payment be of your fixed monthly expenses? How about $958 (two payments)?

He also talks about the biggest investment we can make is in our own training. I would expand that to include personal development, not limited to training the way I think Axel means it. We all know people who’ve been forced to retire or otherwise put out of work at an age that is too early financially (for most) to retire but old enough to have trouble getting hired for something new when needed. Development is more comprehensive than training, IMO, because there can be many opportunities outside of your current field beyond collecting training certificates in your current field (not that those certificates aren’t important).

One other point from Axel about taking care of yourself. He chides the advisory industry for not paying enough attention to health and fitness. Again, this is something we look at all the time here. I think the latest from Fidelity is that a 65-year-old couple retiring this year should now plan on needing $275,000 for healthcare. While I don’t discount the importance of luck and good genes, behaviors related to diet and exercise can delay “getting old.”

I’ve mentioned many times about Prescott being a hot bed for successful aging so I have been seeing it firsthand since I moved here in my mid 30s. The $275,000 works out to $13,750 per year for 20 years. Obviously, if a healthy couple can make it five or even ten years at $2000 or $3000, even spending $6875, they will be on much firmer financial footing in their mid-70s (point conceded that the example is too linear but the example is clear).

People still need to figure out a way to save money and then they need to learn what to do with it (or hire someone to do it for them) but behaviors are just as important if not more so.

The information, statements, views, and opinions included in this publication are based on sources (both internal and external sources) considered to be reliable, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. Such information, statements, views and opinions are expressed as of the date of publication, are subject to change without further notice and do not constitute a solicitation for the purchase or sale of any investment referenced in the publication.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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AdvisorShares is an SEC registered RIA, which advises to actively managed exchange traded funds (Active ETFs). The article has been written by Roger Nusbaum, AdvisorShares ETF Strategist. We are not receiving compensation for this article, and have no business relationship with any companwhose stock is mentioned in this article.

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