They say the early bird catches the worm. Most interpret this adage as suggesting if you seek to increase your odds of success – the chance of discovering that pot of gold – avoid sleeping late. But this is only from the perspective of the bird. What if the maxim were taken from the worm’s point of view? Then it would imply the best way to achieve life’s basic objective (in this case, survival) is by sleeping late.
When seeking advice, it’s always best to understand the perspective and history of the one giving the advice. Many 401(k) participants who look for suggestions pertaining to the how-to of their plan will often first turn to an investment advisor. This is not a bad thing, but it can also be a misleading thing. Why? Because, as I’ve written so often before, the primary focus of 401(k) investors should be saving for retirement, not worrying about how to invest.
Still, there are those few investors that have the time, talent and treasure to learn about investing. It is important they understand the most elementary ideas of investing. And, where do they go for their lesson? Usually (and hopefully) a registered investment advisor.
Aye, there’s the rub. These professionals no doubt understand the world they dwell in and could easily spell out the most important things 401(k) investors should know (see “7 Basic Investment Concepts Every 401(k) Participant Must Understand,” FiduciaryNews.com, June 25, 2013). But, do advisors know too much? Are they too eager to share their knowledge? Can 401(k) investors really grasp the concepts relayed by advisors?
Most advisors agree the biggest issue facing 401(k) participants is learning how to save, not learning how to invest. Yet, historically, 401(k) service providers have focused almost exclusively on investments. Advisors traditionally sell plan sponsors on the virtues of their investment programs. Oh, there’s talk of a savings program, but, let’s face it, when the talk turns to savings, is there the same level of enthusiasm as when the talk turns to investments?
It takes discipline to stay focused. It’s clear 401(k) investors would rather talk about investments than about savings. Why? Because saving takes work – hard work. Investing, on the other hand, offers the temptation of instant gratification. Why spend the energy hitting singles when you can swing for the fences? I mean, investing! That’s the best way to get the pot of gold, right?
That’s where discipline comes in. And that’s where the professional comes in. Call it being a “coach” or an “advisor.” It’s independence that lends itself to the objectivity which helps maintain the investor’s discipline. That’s the value the advisor adds. When a 401(k) plan participant asks a professional for advice, the participant usually expects to hear about investments. After all, that’s usually the nature of the question.
But here’s where the different perspective comes in – and I know many of the best advisors already do this. Instead of answering the investment question the participant asks, why not answer the savings question that hasn’t – but should have – been asked?
And if the participant insists on sticking to the topic of investments? Well, I’ll answer that by sharing a lesson I once learned from a grizzled old “advisor” of sorts. Back in my late 20s and early 30s, I took up boxing. I never actually went into the ring, but I did train. My trainer was a veteran boxer who served in World War II. He trained GI’s in hand-to-hand combat. Tough, gritty, manly stuff. Stuff you don’t want to tell your kids about.
One day, after years of training with no intention of ever going into the ring but with a voracious desire to know everything about the sport, I ask the trainer, “So, how far away should I stand?”
“Six feet,” answers the trainer without hesitation.
“Six feet?” I came back just as quickly. “How am I supposed to land a punch?”
This time the trainer paused for a moment then shook his head. Approaching me as a father would before revealing some hard truth of life, he says, “Chris, look at me. You’ll never go in the ring. You’ll never win the Golden Belt. There’s only one situation where you’ll ever have to put to use the skills I’ve taught you. And for that, you need to remember to stand six feet away.”
Yes, I was embarrassed at my naïveté, but the surety of the distance still had me confused.
“Why?” was all I could say.
“Because,” the trainer said with a glint in his eye, “you never know if the other guy has a knife.”
Survival. That’s really all it’s ever about. It doesn’t matter how elegant your investment strategy is, if you haven’t saved enough, you won’t survive retirement. That’s the perspective advisors need to continually emphasize with 401(k) participants.
For more from Chris Carosa, see: