The most common question a money manager hears is: “What do you think the market is going to do next?”

The honest answer is not what the questioner wants to hear–especially if that person happens to be a client. The truth is, there is no manager on the planet that knows what the market is going to do next. Numerous studies have shown that market gurus–the ones who make a living by predicting what the markets will do–are actually very bad at it.

Unfortunately, there are many people who base their financial futures on these inaccurate predictions.

To help keep people from making poor decisions with their pension and retirement money, here are a few suggestions:

1. Don’t lose money. This is legendary investor Warren Buffet’s motto, but it is also the mantra of virtually every credible, respectable investment professional. That means investors need to be conservative with their retirement accounts. 

2. Look for investment options that are in an upward trend. This is self explanatory. One of the great things about investing is that we can place our bets on horses that are already running well midway through the race.

3. Choose investments with low volatility. We want the overall market to have some price swings, because that gives us a better opportunity to make a profit. But we prefer to have very little volatility in our individual investment choices.

4. Manage risk. This encompasses everything mentioned above and more. You need to be diligent and active in protecting your investment assets. During periods of market weakness, don’t be afraid to move assets to cash. When that isn’t an option, diversify assets among the lowest-risk choices.

5. Don’t chase performance. This is a common mistake of amateur and professionals alike. They find the investments that did well last year, move their portfolio to those investments and hope they will do well again this year. Unfortunately, that usually isn’t the case. 

6. Have realistic expectations. Don’t expect to average gains of 20% a year. Any year where your investments earn 10% is a very good year. At times you will hear friends or co-workers talking about an investment that gained 100% or more in a brief time. Be happy for them. Congratulate them. But do not go out and buy that investment with your retirement money. If you want to chase a speculative investment, make certain you do it with a small amount of money that you can easily afford to lose, because most of the time that is what will happen.

7. Use professional management. It is ironic that people who would never consider going to an unlicensed dentist are willing to trust investment decisions to friends, co-workers or even a stranger with no investing credentials. Fee-based managers usually charge 1% to 2% annually, depending on the type and size of account.

Next week we’ll spend a couple of days talking to people at a senior citizen expo in Salt Lake City. Invariably during that time we will talk to several seniors who had to make dramatic changes in their retirement plans because bad advice or investing mistakes wiped out an IRA, 401K or other pension account they were counting on. Sometimes these folks have been forced to postpone retirement plans indefinitely as a result.

In short, investors should handle their pension accounts as if their lives might someday depend on them, because that is exactly what will someday occur.
F.S.

If you would like an investment strategy that attempts to minimize risk but still provides the opportunity for solid growth, check out the Foundation Strategy from Strategis Financial Group.  This actively managed strategy is designed to take advantage of the experience and expertise of some of the nation’s best mutual fund managers. To learn more, call me, Flint, at 800-279-3377.

You requested this MarketOwl free e-newsletter. Please add support@marketowl.com to your e-mail address book to ensure prompt delivery.