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Ryan Marshall, CFP®
642 Wyckoff Avenue
Wyckoff, NJ 07481
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Watercooler Financial Advice

| May 30, 2017

Have you ever talked to a co-worker about their 401k and they tell you how well they have done?  This same co-worker may also tell you how well he/she did at the casino, but they never tell you when they lose.  This is often the issue we encounter while speaking with some of our clients.  They tell us how "this person" or "that person" performed well with their investments.  Take this with a grain of salt, because it is our human nature to brag about our successes and not mention our failures.

This is just one of the flawed issues when listening to co-workers about their investments.  Another issue we find is someone's level of risk tolerance is most likely different than someone else.  If the portfolio is doing so much better than the average, then how much more risk are they taking for this?  Are they invested in more volatile asset classes, such as small companies or emerging markets?  Are you willing to invest in more risk?   If you are, is now a good time to move into a more riskier investment?  Again, human nature may have you believe in the misconception of investing in asset classes that are currently performing better than others, but is this the same thing as "buying high"?  Aren't we suppose to buy low and sell high?  ARE YOU GUILTY OF LOOKING AT LAST YEARS PERFORMANCE AND INVESTING YOUR NEW MONEY INTO THE BEST PERFORMING ASSET CLASSES?   You may be guilty of buying high and selling low.  If so, don't worry because you are not alone.  Dalbar does a study every year and the average investor only made 3.66% in equity funds over the past 30 years while the S&P 500 made 10.35% over the same period.   The full report can be found here Dalbar Study

Another area to consider when speaking to a coworker about their proposed retirement plan are lifestyles choices.  Since many people conduct their lives in different ways (some more extravagant than others) it is important to realize not all retirement plans should mirror each other.  For instance, someone who is 10 years younger than you or with a different lifestyle may require a much different portfolio than you.  A good way to begin the process would be to always start with a retirement plan and see which investments are in line with your retirement goals.  Retirement goals vary from one person to the next depending on the person and the lifestyle they are accustomed to.

In conclusion, it is highly recommended that all individuals have a retirement plan, but keep in mind, the plan should be a custom fit to a person and their unique lifestyle.