Welcome to another edition of Financial Fitness Friday. Today is January 22nd, 2021. Let us flex our financial muscle!
After a tumultuous election cycle and questions surrounding the inauguration, we have had a change of administration, and the 46th President of the United States has been inaugurated.
Many people are concerned about what this new administration’s change of philosophy is going to mean for the economy, for the stock market, for interest rates, and for their investments.
Let me bring you back to a key 2-word term: Investment Policy.
Before ever investing, you should have a plan, a strategy, and the desired outcome, as well as an exit strategy.
In short, you should have a well-defined, and indeed – written – investment policy.
Now before you even create your investment policy, you should have created a comprehensive financial plan.
Now with that said, a plan for someone transitioning into retirement and focusing on income, is going to be a lot different than someone during their working years, focusing on saving and building.
Regardless, long term financial success in any endeavor is due to careful planning.
Any financial plan must be constructed with a solid foundation. These are things like budgeting, cash flow management, getting out of bad debt, having the proper protections in place, like insurances, and having an emergency fund.
If you have done all of these things – including having some hedges in place – you really should not have to worry about the change with the new, incoming administration.
Perhaps you have hedged with insurance contracts or annuities; maybe you have hedged with gold, or maybe you have hedged against currency manipulation with cryptocurrencies.
But if you have planned for uncertainty; then you should not have to worry. You should not have to change your plan.
And you SURE AS HECK should not deviate from your investment policy, without a very good reason.
HERE IS THE PROBLEM
Many people do not follow this careful approach to planning.
Instead of creating the proper foundation, and then slowly climbing up the risk ladder as they gain experience, knowledge, and sophistication, many just try to jump in at the top, most sophisticated levels.
It is ridiculous!
If you were to use a health and fitness analogy, it would be like your first day in the gym, trying to start off bench pressing 300 lbs., without gradually working up that weight over a period of time.
Your spotter would help you lift the barbell off the rack… and it would immediately crash to your chest, crushing your rib cage. This is definitely a recipe for injury!
In the same way, it is futile to jump in at the top of the investment hierarchy and try to “strike it rich.”
It is a recipe for financial injury.
But we have actually known people with this gambler’s mentality…
Buried in consumer debt, they try to leap past the disciplines of time-tested basics we have just described…
Instead, they read 1 book or watch a YouTube podcast about day-trading tech stocks, and jump right in, thinking they are going to strike it rich, and that will take care of their debt problems.
I do not have to tell you how things ended up in every one of those cases I have observed.
Why does this happen? Sheer greed is one reason.
Sheer stupidity is another (I guess influenced by greed). By another reason is FOMO – Fear Of Missing Out.
For the last 10 years, coming out of the financial crisis, we have had a really nice bull market run.
We have had a few scary blips, like the coronavirus crash, and the Christmas correction at the end of 2018, but for the most part, we have had a nice run.
In fact, the S & P 500 has returned a true rate of return of about 13% over the last 10 years. Granted 3- or 4-years’ worth of that gain was just recovering losses from the financial crisis, but for those people who diligently invested in a disciplined way, sticking to their investment policy?
They are likely very, very happy with their gains right now.
But the average guy, the one I described earlier?
The one buried in consumer debt, the one NOT saving, NOT investing.
He is in the position that he is in due to poor habits, perhaps stemming from a lack of financial literacy. Perhaps stemming from lack of financial discipline. Maybe both.
But this guy – he looks around, seeing everyone else making money, gets a little bit envious perhaps, and decides he is going to FINALLY jump in.
He is going to jump into the stock market NOW when it is at all-time highs, and he has got some catching up to do, so he is going to buy the riskiest stocks because he is going to strike it rich.
Or for those people who favor cryptocurrency as the way to wealth – instead of diligently investing into cryptocurrency, they decide “I don’t want to miss out!” and they dump all of their savings in right now after Bitcoin went from 10,000 to 40,000. Is that the wisest move?
Probably not. All because they have not formed the correct habits for creating an investment policy congruent with their goals and sticking to the plan to regularly invest for the long term.
There is no real shortcut to financial independence.
It seems like everyone wants immediate gratification, or to get rich quick, without putting in any time or work.
It does not work out that way in the real world… maybe for the guy who discovered gold in California in the 1800s, but for 99.9% of people, it does not work out that way.
Value investors, like Warren Buffet and Benjamin Graham, very clearly state that the best deals (and therefore the highest rewards) can often be found in investments that are the best bargains and therefore less risky.
Find value based on fundamentals, buy-in, and then hold for the long term is the essence of value investing.
Maybe that sounds confusing, and you have no idea how to do that. That is okay.
That is why there are professionals like me working in this field.
And unless you are going to make this your profession, thinking that you can do in your spare time what keeps the experts busy full time is a silly notion.
But your heart is in the right place, you have goals, and working with a great adviser and a great team is often key to maximizing your investment’s performance for long term outcomes.
I am an investment advisory representative (IAR) with Retirement Wealth Advisors (RWA).
At RWA 
I am hearing more and more that people are extremely dissatisfied with some of these bigger wealth management firms like Morgan Stanley or Merrill Lynch. “I don’t have $5 Million with them, so they don’t give me the time of day; we get one phone call a year.”
RWA is big enough to have top talent money managers in the industry but small enough that our personal relationship with you still matters.
The whole reason I got into this business is for that relationship with you – to see you grow, to share in your success as you progress, and to help you achieve your retirement goals.
I do not have a conflict of interest when giving investment advice…
I do not get incentivized with a fat bonus to recommend the hot new mutual fund that the investment bank just brought to market.
We are fee-based fiduciaries, which means as a professional adviser, I am obligated to recommend investment strategies that are in your best interest.
Whether you decide to work with me, or someone else, or heck, maybe you already have a great relationship with someone you love – it is of utmost importance to work with an adviser you feel is competent, one you can trust, and one who has the same philosophy that will help you execute on your investment policy.
Thank you for taking the time to read this article. I wish you the very best on your journey to great health, happiness, and to financial prosperity as well!
For more information, call at 248-499-9676, ext. 1 or email: ronald.sneller@snellerfinancial.com
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