Have you ever wondered why highly successful people are often found struggling in their later years? You may be thinking of professional athletes and Hollywood stars who die penniless, but this phenomenon is pervasive in our culture and crosses all socio-economic classes.
As financial advisors, we see a broad range of issues that can lead to poor outcomes. Investors are often fixated on the variety of risks that are ever-present in the markets, or on investment returns, expecting good returns to negate all other factors. While risk and return are clearly important, we believe the far greater cause for financial failure is the result of poor planning and poor decision making.
Take, for example, the couple who has done everything right their whole life, but now finds themselves in the midst of a late-life divorce. Or the smart investor who becomes bored and depressed early in retirement and begins to make mistakes, including investment missteps. Or the business owner who has built a cash cow, but has no succession plan and waits too long to plan his/her exit.
Other common pitfalls include:
- Consuming versus Saving
In our consumer-oriented society, there is an endless supply of really cool “stuff” to buy and enjoy. And since buying and consuming provides instant gratification while saving results in delayed gratification, it’s no wonder we find it harder to save than spend. We’ve found the solution to this dilemma is to set a reasonable savings target every year, while also leaving enough to enjoy some spending. A financial plan is helpful, as it’s hard to know if you’re saving enough without one.
- Who You Hang Around Matters
Don’t minimize the impact friends can have on your emotions, actions, or even your health. For example, one of our clients found that his weekly meetings with his men’s group correlated with a spike in his blood pressure. After discussing with his doctor, he came to realize that the topics covered, which included terrorism and the declining American culture were literally not good for his health! The doctor asked our client to consider giving up his men’s group, to see if things improved. Not only did things improve, but our client is no longer taking his blood pressure medicine. Take time to evaluate if the people you hang around with are uplifting, feeding your spirit and intellect, or if they are inducing depression or panic attacks.
- Bad Investment Decisions
One of the hardest aspects of investing is fighting the human emotions of greed and fear. These can lead to buying “high” and selling “low” – a strategy doomed to failure. In addition, some investors decide to go for higher returns in order to compensate for excessive spending. Higher returns come with higher risk, causing many plans to derail completely. Chasing higher yields in oil and gas master partnerships, junk bonds and preferred shares has led many investors to suffer losses greater than the yield they gained. Others remain in cash, fearful of markets, but guaranteeing themselves a loss of purchasing power. This deep into a bull market, we believe incorporating some defensive strategies along with a focus on high quality diversification, particularly for retirees, is prudent.
There are dozens of other pitfalls, financial and non-financial, to consider. As part of our ongoing financial education, we have developed the Stearns Financial Field Guide Series, a collection of books to help investors avoid future mistakes.
Past performance is no guarantee of future results. This material is not financial advice or an offer to sell any product. This report is for informational purposes only. The statements contained herein are solely based upon the opinions of Stearns Financial Group and the data available at the time of publication of this report, and there is no assurance that any predicted results will actually occur. Stearns Financial Group reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. This report contains no recommendations to buy or sell any specific securities and should not be considered investment advice of any kind. In making an investment decision, individuals should utilize other information sources and the advice of their investment advisor. Information was obtained from third party sources which we believe to be reliable but are not guaranteed as to their accuracy or completeness. Stearns Financial Group is a registered investment advisor. More information about the advisor, including its investment strategies and objectives, are fully described in the firm’s Form ADV Part 2, which is available by calling (336) 230-1811, or can be found by visiting www.stearnsfinancial.com. SFG-17-119
Stearns Financial Group 1450 Raleigh Road Suite 105 Chapel Hill, NC 27517
StearnsFinancial.com // www.StearnsFinancial.com
919-636-3634 // nationwide 800-881-SFSG (7374)