“Balanced Investing” Is a Fallacy You MUST Avoid if You Want to Enjoy a Comfortable Retirement

“Balanced Investing” Is a Fallacy You MUST Avoid if You Want to Enjoy a Comfortable Retirement

Sometime during the latter part of 2009, I came across an article on the CBS Money Watch wddebsite, authored by Charlie Farrell: Top Three Financial Moves Before 2010. In my opinion, one of the moves the author refers to as “Balance Your Investments” is completely out of touch with reality for most investors. It may well be that I am a bit slow, and therefore missing something. Let’s see what you think. 

According to the article:

One of the best things you can do to help protect and grow your retirement savings is to implement a balanced investment strategy. And by balanced I mean a basic split between diversified stocks, which carry more risk, and high-quality bonds, which carry much less risk. The reason so many people lost so much money in this recent crisis is because they weren’t balanced. It’s such a basic strategy, but very few people follow it.

With all due respect, Mr. Farrell doesn’t seem to understand that most investors (at least those I meet and hear from on an almost daily basis) are sick and tired of the same old vague talk. See, while there are investors who are out there doing their own thing, so to speak, a large number of Americans have advisors, consultants, pros, experts, and whatnots who are designing and managing their portfolios. These so-called pros tell investors exactly what to buy and what not to buy, and yet most of their investors are still suffering the losses they experienced in the market freefall of 2008. So if balanced investing is, as the author claims, really “such a basic strategy,” is it fair for me to conclude that these gurus don’t know what the heck they are doing?

Not to mention that investors read columns like the one penned by Mr. Farrell and others “who know what to do” in order to avoid going broke with their investments. Yet, these investors continue to get nowhere with their portfolios – some lost unimaginable portions of their life savings. So, please, maybe we just need a break from this kind of advice.

Then, in the follow-up paragraph, the article points out:

Consider that in 2008, the S&P 500 was down about 37 percent and the Barclay’s Aggregate Bond Index, which measures the return of the total bond market, was up about 5 percent. So if you had split your money between these two very basic asset classes, you’d have been down about 16 percent, which was pretty manageable. And by now, your total portfolio would probably be down less than 10%, given the recent recovery we’ve had in stock prices.

If Monday morning quarterbacking were a paid profession, wouldn’t some folks be multizillionaires already? I, for one, am glad it’s not. Here’s what I don’t understand: Why would any investor want to lose even 1 percent of their hard-earned dollars when they don’t have to? Do folks like this author even realize that there is a proven strategy that kept certain investors from losing anything in 2008, yet as the market improves they stand to make money up to their contracted caps? Not one of our clients here at Laser Financial Group lost even a penny during the recent market downturn.

As I have said several times in the past, some people simply don’t know what they don’t know, and that is a very dangerous position to be in because you literally become vulnerable to all sorts of, frankly, toxic advice –just like this bit from Mr. Farrell.

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Call Laser Financial Group at 301.949.4449 or visit us on the Web to schedule your complimentary consultation and explore the best options and strategies to preserve ALL of your retirement investments.