Retirement planning should rely on math and hard, cold facts—not emotions.
Many experts believe we are at the peak of the stock market and are well overdue for a crash. As someone who’s getting close to retirement, you don’t have the time horizon to wait out another stock market nosedive like the disaster we had only a decade ago in 2008. Now is the not the time for emotions; now is the time for rock-solid retirement planning.
Decker Retirement Planning takes a completely different approach to retirement planning, one which relies on research and logic. Our math-based retirement planners will help lay out your retirement plan for you on a spreadsheet and show you exactly how you can distribute your assets and finance your retirement up to age 100. Not only that, but we’ll also help address the dozens of retirement risks you will face including inflation, healthcare, income taxes, and much more.
Emotional investing exacerbates your losses when it comes to your portfolio returns.
When you’re young, buy-and-hold may work for you as a long-term investment strategy (that is, if you truly “hold” through market downturns). However, buy-and-hold does not work as you draw closer to retirement. The trouble really starts when you start selling off your investments when markets drop and purchasing them back when markets are high—also known as “emotional investing.”
If you’re getting close to retirement, emotional investing can add years to the time horizon required for you to accumulate enough money to actually retire, and, if you’re already retired, emotional investing is disastrous!
Morningstar research says emotional investors under-perform their own funds.
Research from Morningstar indicates that individual investors actually under-perform the funds they’re invested in. For instance, in the 10-year period from 2003 to 2013, individual investors averaged returns that were about 2.5% less than the funds they were invested in. From 1990 to 2010, the average individual investor under-performed the funds that they invested in by a whopping 5% each year!
According to other Morningstar data, if you lose five percent because of a downturn, it can take you about six months to recover—just to break even. If the markets go down 40%, it takes you around 4.8 years just to get back to the amount you had before the drop. This is not a good scenario if you’d like to retire in five years.
Too many trades leads to lower performance.
Emotional investors are in and out of their investments too much. On average, heavy individual traders lag behind the returns of light traders.
Emotional investors usually make lower margins and under-perform their investments or funds because they sell things off during market downturns out of fear and buy things back during market upswings due to greed. They’re in and out of the market too often. Some emotional investors also buy risky “hot investments,” not because they make sense for their portfolio, but strictly due to fear of missing out on imagined big returns.
Keep in mind, emotional investing can sometimes be the opposite. Emotional investors sometimes stay out of rising markets longer than they should because of fear or stay in too long because they convince themselves a particular investment “will come back.”
When you buy high and sell low or get in and out of the market at inopportune times based on your hunches, greed, or fears, you are getting a worse return than you would have gotten by hanging on to your investments through the years. When you’re close to or in retirement, this is a recipe for disaster.
What should you do instead?
Behavioral finance studies have shown that financial gains trigger the same reward response in the brain as cocaine, while financial losses trigger a hardwired fight-or-flight negative response. This is hard to overcome; it takes real discipline to not be emotional about money and investments!
Here is how to recognize whether or not you are an emotional investor and what to do instead:
1. You make decisions by your gut, thinking that good vibes will help you in the market. You think you can outsmart the market, charm the market, or be luckier than the market.
Instead: You can’t time, out-luck, or outsmart the market. Find a retirement planner who can help you do the math; don’t go it alone.
2. You trade stocks constantly. You might lose money in the process, but it feels fun, or it feels like a game.
Instead: Get more serious about your finances, and hire a professional. There are better hobbies to spend your time on that won’t compromise your future financial security.
3. Your stock drops a few cents, and you sell because the loss is just too painful. The minute you read a newsletter about some up-and-coming hot stock, you make a call to a broker to invest.
Instead: As you get closer to retirement, you should consider moving out of stocks.
4. You are very risk-averse and have heard that “bonds are safe.” Even when you lose money on bond funds or are told that interest rates are headed up even higher (therefore, you can probably expect further losses), you refuse to move the money until your investment “comes back up.”
Instead: As you get closer to retirement, you should consider moving out of bonds, because they are actually not safe. They are subject to market volatility and interest rate risk.
5. You watch the financial reports and ticker tapes throughout the whole day, even though you’re not a financial professional. You panic about your investments whenever you hear bad news about national or world events, especially if they’re announced on Twitter. You have anxiety and feel scared about your portfolio’s performance every time you log in to your account.
Instead: Have a long-term retirement plan in place that isn’t reliant on market results or news headlines. Relax, and focus on what you want to do with the rest of your life.
6. You feel your investments reflect you as a person. For instance, you hold on to an investment that’s “good for the planet” even if it’s not performing.
Instead: Only invest in things that will mathematically help you achieve your retirement objectives.
7. Your investment choices are made strictly based on what your friends, family members, or colleagues are invested in.
Instead: Focus on your own goals and dreams, and find a financial advisor who will get you there.
8. You are an active investor and are overly confident in your own research (even if your source of information may be an unregulated newsletter). You celebrate gains, but you haven’t sold anything. You’re still invested. There’s no reason to break out the champagne until you’re out of the investment, and you made a profit. As Warren Buffett says, the only price that matters is the price that you bought it for compared to the price that you sold it for.
Instead: Be the CEO of your retirement planning by delegating it to financial professionals who have decades of experience and have demonstrated successful results.
9. You make too-frequent calls to your financial professional about your account and performance.
Instead: Call your financial advisor for fun reasons (like, let’s have lunch) rather than because of stress and worry. You should have confidence because you understand the strategy and reasoning behind the long-term plan they’ve put together and are implementing for you.
How are we different?
Don’t do your retirement planning yourself. Decker Retirement Planning offers a safer approach to retirement. We will show you how to create income using principal-guaranteed* products to fund the largest part, if not all, the years that you will be retired. The spreadsheet we create for you could show you all your sources of income (including Social Security, which we will help you optimize), cost-of-living increases, income taxes, and emergency cash up to age 100—all using precise calculations that can be relied upon.
*Guarantees provided by insurance companies, banks, and government entities.
If you desire or need any part of your portfolio to stay invested in the market, we design that part to be accessed when you are 80-85 years old or for wealth transfer to your heirs. We utilize a strategy to take advantage of both bull and bear markets, and we do the proper due diligence and research behind your plan using fintech tools like Morningstar, Theta Research, and Wilshire Compass.
We analyze investment performance and results net of fees. Because we are independent, we have access to hundreds of financial products and options, which we compare in order to make recommendations. (Only true fiduciaries do this, brokers do not.) Furthermore, we are fee-based and do not make commission on investments or trades. We are legally required to put your best interests ahead of our own, and that’s the way we like it.
