Aaron Katsman 58.
(photo credit: Courtesy)
Do you seem to be disorganized and unconcerned when it comes to managing your
retirement? Have you taken to heart conventional wisdom bandied about in the
BUY AND HOLD THE
S&P 500... NOT
Avoiding costly mistakes when handling your money can be as effective as
actually making money. These three tips will help you take control of your
finances and get your retirement plan up to date.
Go to a personal-finance website and you will inevitably be
advised to stick the lion’s share of your money in some kind of S&P 500
tracking vehicle. Whether it’s an ETF linked to the famous index (SPY) or an
index mutual fund that provides the same linkage, the message is clear: own the
largest US companies and you will be “guaranteed” to have a comfortable
This approach was made famous by John Bogle, founder and
retired CEO of the Vanguard Group. He preached and preached this type of
investing approach, claiming that it was low-cost and the most efficient way to
build your wealth. Well, if the past decade is any indication, the only one who
got rich was Bogle himself. He became fabulously wealthy from pitching this
Unfortunately, his followers have managed to make exactly no
money in the S&P 500 over the last 10 years (the “lost” decade that I have
mentioned many times in this column).
That’s not taking into account that
these investors have seen the actual erosion of their purchasing power due to
The world is a dynamic place.
More and more economic
growth is coming from sources other than the largest US firms. Over the same
“lost” decade investors in smaller (IJR) or mid-sized (MDY) US companies would
have had very nice returns (approximately 7 percent a year), even accounting for
three market meltdowns.
Investors who looked outside the US fared even
better. Not including Japan, investors in Asia (EPP) would have seen an
approximate 15% annual return, and Latin American investors (ILF) would have
seen a 40% annual return. The lesson: Get your portfolio global in
focus.STOP THE INERTIA
For those of you who are not do-it-yourself
investors, does this story sound familiar? I recently met with a wealthy
cardiologist who wasn’t happy with his investment adviser.
He said his
adviser was so unresponsive to his requests that even when he instructed him to
sell out his entire portfolio, the adviser failed to execute his order. As a
result, the value of his portfolio proceeded to lose 20%.
about the regulatory issues raised by the adviser’s behavior, the doctor told me
this was not the first time this had happened. In fact, he has been unhappy with
the level of service he has been receiving for the past three years. He was also
disappointed with his investment returns and thought they should have performed
better based on market performance during the same period. When I asked him why
he hadn’t transferred his account to a different firm, he said he was very busy
and didn’t have the time to get around to it.
By doing nothing, the
doctor lost a ton of money and will have to continue working longer than he had
originally planned to ensure a comfortable retirement. It sure seems like that’s
worth a phone call! I can’t stress enough the importance of staying on top of
your investments so that “inertia” doesn’t set in.CONSOLIDATE
mistake is having multiple investment accounts with different firms and not
paying attention to their performance or how they are all invested. Your
financial adviser should be like a chief financial officer (CFO) who is
responsible for the entire financial situation of a business. When a client has
various accounts, his financial adviser should have a broader view of the
situation. The professional will assess all accounts, make sure they fit into a
broader allocation strategy and see how the entire financial situation fits his
client’s goals and needs.
Stop relying on the media to plan your
retirement and start taking control of your own situation. The more you stay on
top of things, the greater success you will have in hitting your retirement
firstname.lastname@example.org Aaron Katsman is a licensed
financial adviser in Israel and the United States who helps people with US