Eric Powell is the CEO of RightPlan Financial, a fee-only financial planning and investment management firm. He has obtained the Chartered Retirement Planning Counselor℠ designation.
The most wonderful time of the year can quickly turn into the most concerning time of year. It all starts when John and Jane Doe go to a holiday gathering and bring up their investments. Soon, everyone is in on the conversation. One person says they have not lost any money in a down market, one says they are up this year, and another says they are losing everything. Before long, a few party-goers have knots in their stomach and can’t wait to fire their financial advisor. The problem? It could be your financial advisor, though usually that is not the case. Instead, it is the misunderstanding of your current goals and investment strategy compared to your friends.
The holiday gatherer who has not lost any money or has seen slight growth in a down market is generally the investor who is extremely conservative and never wants to see their money go down. They tend to gravitate toward fixed income options such as fixed annuities and government-backed bonds. This investor may be the topic starter bragging right now about how good their investments are doing. This is also the investor who will be upset if the market has a great year and their assets have only seen a fraction of the market growth.
Another holiday gatherer may have been invested moderately in the market, due to a financial plan showing their investments need to average 6% per year or they will not make it through retirement. Fixed-income portfolios may not be the right investment for this type of return, and this investor will often see more fluctuation, both up and down. They must take on more risk, but historically, they come out ahead of the fixed income investors over the long term.
Instead of letting a conversation ruin your holidays, when Uncle John brings up his investments, following one of these three steps:
- AVOID the talk. Enjoy the holiday gathering, and don’t get caught up in market chatter. Offer to get coffee or save the day by changing the topic completely.
- Educate yourself before you attend the party. You should already be aware of how your investments are allocated and have an idea of why they are invested differently than others.
- If you don’t do one of the first two steps, don’t let the market talk ruin your holidays. Instead, keep an open mind and know that you have some great talking points to ask your advisor. They should be able to educate you about your portfolio and why it is or is not doing what you thought it would.