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Overcoming the fear factor

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“Be fearful when others are greedy and greedy only when others are fearful.”
-Warren Buffett

Statistics show that trying to time the market by getting in at the bottom and exiting at the top is nearly impossible. For example, during the dot-com phenomenon, there was an abundance of emotional money chasing stock offerings that had almost no potential for success. When dot-com became “dot-gone,” wise investors got back in. There is never a “perfect” time to rejoin an investment, but with some financial wisdom, it is slightly more predictable.

This example clearly demonstrates how important it is for advisors to make sure their clients have developed a solid investment philosophy that ensures their money is invested in a risk profile that suits their unique situation. Clients should also have a well-defined investment horizon. Once both have been determined, your clients should not be fearful of the market’s unpredictable twists and turns.

As a trusted advisor, it is vital during this era of uncertainty and turbulence that you are proactive with clients and remind them of the investment decisions you worked out together.

One exception to the necessity of having your clients follow the risk-reward profile you initially mapped out with them would be if they are within five or so years of retirement. This is a critical time for investment results, so together you must reassess and recast your clients’ investment profiles.

During this pivotal time the investment decisions your clients make can irrevocably change their retirement income for the rest of their lives.

I suggest to these particular clients that having a “trampoline,” rather than all “pavement” under a portion of their portfolio is key. The trampoline refers to a diversified portfolio that includes a segment of liquidity, such as certificates of deposit, money market accounts or guaranteed annuities, which allows your clients to have access to an income stream or cash for opportunities or emergencies.

Still, today there are so many people approaching retirement who don’t see the connection between their financial statements that show a nice net-worth, and the cash flow their net worth is going to generate. Many will say, “I’m worth $2 million and five percent of that is $100,000. I’m in fine shape to retire.” However, chances are their portfolios consist of some real estate or business property they own that doesn’t produce that level of income now – forcing them to take a good look at their portfolios to see where their retirement income will be generated. Exploring their retirement plans, liquidity and equity will make it very clear whether they can retire when they’d like to, or if they will have to sell assets to create enough income to retire.

All indications show that the economy will continue to face a long and bumpy road. It is truly up to us as trusted financial advisors to guide our clients through their investment decisions free of fear or greed.


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