The Financial Planning Fable

For decades, financial professionals have made a living by selling retirement plans to clients. These professionals claim that if you use their services that they will assess your risk tolerance, retirement goals and financial needs to determine the ideal portfolio for you and your specific situation. What we are about to discuss is not a popular sentiment in the investment world, but the concept of a customized financial plan is 100% fiction.

There is one very hard truth that investors need to understand when investing in a security or asset class; the market does not care about you. The market does not care that your first car was a Ford and that emotional sentiment is why you should buy their stock over GM, and the market does not care that you think buying a savings bond is a fantastic risk-free way to secure your future. The market does not even care what your retirement aspirations are; all actors and actresses that move to Hollywood aspire to win an Oscar one day, but wanting it does not mean that it will happen.

When it comes to meeting your goals for retirement, there are only 2 factors that matter; principal and rate of return. An investor’s risk tolerance or likes and dislikes have absolutely nothing to do with securing a successful retirement. Investments react to economic conditions, not your preferences. Just because you like a particular investment does nothing to increase its chances of going up.

For example, if a 38 year old has saved $100,000 for retirement and puts that entire life savings into government bonds for fear of a market downturn and to remain as risk averse as possible, that $100,000 will only be worth about $175,000 at retirement  given where 30 year bond rates are today, and that is before investment costs.

As yet another example, if you were a supporter of green energy initiatives and put a substantial portion of your portfolio into the green energy sector, you would be in a world of hurt if you had chosen Solyndra as an investment.

The fact is that while the inner workings of the equities, bond, derivatives and commodities markets can be difficult to assess, proper investing for your future is a rather simple concept; study to determine which market segments or sectors you expect to do well given economic and geopolitical conditions, and diversify within that sector. To clarify, traditional diversification is spreading your money out across various market sectors, hoping something will go up. If you can determine a sector that will do well (real estate, growth stocks, debt, commodities, etc.), you should diversify within that sector. Mutual funds are a great way to accomplish that goal.

Everyone deserves a happy retirement, and there are factors that need to be addressed, such as your lifestyle needs, what goals you want to achieve for yourself by the time you retire, etc. However creating a custom plan that suits you specifically is not the answer.

If you take nothing else away, remember this; the only things that can truly impact how much money you will have at retirement are the amount of capital you add to your portfolio and the rate of return that you earn. Everything else is just a gimmick.

Ben Treece is a partner with Treece Investment Advisory Corp ( and licensed with FINRA ( through Treece Financial Services Corp. The above information is the opinion of Ben Treece and should not be construed as investment advice or used without outside verification.
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