Monday, July 20, 2015

Are you all set for maximum investment returns?

A very common phrase in the American culture is “I’m all set.” For instance, it’s a frequent response to a salesperson when you’re casually out shopping in a retail store.

It’s almost a given that, before you leave the store, someone is going to ask if there’s anything else they can do for you. And it’s not just the department store; it’s the oil change place, the restaurant, even the bank.

So I shouldn’t be surprised that the phrase pops up in my part of the financial world. Often times, when I’m out socially, people will approach and ask me a financially related question. I usually answer the question, but I also offer to meet the person to go into more detail. More often than not, the response is “I’m all set.”

In our day-to-day lives, people like to get into a comfortable routine, especially regarding their finances. But, I suggest that it’s risky for anyone to conclude that they’re “all set” with their finances. Certainly not forever.

Let’s take a look at a few examples. Many are still feeling the economic scars of the near meltdown of 2008-09. Far too many households did what I refer to as “knee-jerk” financial planning. In other words, they totally abandoned their investment strategies and fled to the low-interest-rate banks, intending never to return to the investment world again.

Another example of the “I’m all set” mentality gone wrong often falls on the shoulders of a surviving spouse. Not to pick on General Motors, but I know that there were quite a few retired auto executives who were overly concentrated in GM stock.

It was their mindset that the stock would be a winner throughout their retirement years. Frankly, there’s nothing wrong with having confidence in your company. Unfortunately, a few surviving spouses learned the hard way that they were not “all set” by holding onto GM stock forever.

The lesson here is clear. No matter how good an individual stock may appear, there is inherent danger in putting all of your retirement nest egg into one basket. I have certainly written about diversification before.

Retirees and widows also used to be able to supplement their nest egg with the interest from their bank deposits. When interest rates were near 5 percent, a $100,000 bank deposit would generate $5,000 of income. Today, you’re lucky if that $100,000 earned $1,000.

The good news is that many of those that are dependent on bank interest are finally aware that they’re not “all set.” The questionable news is that far too many of them are seeking alternatives with higher interest rates.

Questionable because I think they have no idea what they’re buying in order to get higher rates and I fear they don’t comprehend the risk inherent in the investments they make with money withdrawn from the bank.

On another note, I’m pleased to share that I will be one of the speakers at a series of Healthy, Wealthy and Wise Workshops in the comings months. These workshops will be hosted by the Society for Lifetime Planning and I am confident that anyone who attends will benefit. For further details, please call 248-952-1744 or e-mail

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