Don’t Let an Ego-Driven Portfolio Crash Your Retirement

Congratulations, you managed to put together a brag-worthy investment portfolio, but making the adjustments necessary to keep it there takes a lot of work. Over the years, it’s not uncommon for even the best investors to lose touch, and by the time they ask for help, it can almost be too late.

“Please just fix it.”

I think a lot of investors would be surprised how often financial advisers hear those four little words. And how often, by the time someone asks, it’s almost too late for us to offer any help.

Just recently, for example, I had a gentleman who’s been handling his own investing for decades come in and tell me he just can’t do it anymore. He’s 72, he’s been diagnosed with cancer, and his wife isn’t the least bit interested in managing their accounts. “I’m realizing we need professional help,” he said.

I took a look, and there was the typical mishmash of investments. They were chosen, I’m sure, with good reason at some point. But at some point, those reasons went away.

One position that stood out was General Electric. It’s been headed in the wrong direction for a while now, and yet, he’d held on. Why?

Well, he said, they have a new CEO, and they might turn it around. There’d been times when he’d made money with it, and he wanted to see it come back. And he felt the dividend made it worth keeping.

“But the truth is, I’d sell all this stuff tomorrow if you could just fix it for us,” he said.

That was on a Friday. The following Tuesday, GE announced it was cutting its quarterly dividend to a penny a share — the eighth-largest dividend cut in the history of the S&P 500. The stock is down to a price that might make it a good pickup for someone — but not necessarily for a couple in their 70s who need to pull income from their nest egg.

And now my new client is going to chemo treatments, he’s not feeling well, and he and his wife are trying to get back to our office to get everything figured out.

Of course, I’m going to help them. I just wish they had come in a lot sooner.

I’ve had couples come in and tell me they’ve already filed for Social Security, sold their house and want to retire in a month. I’ve met with widows who have no idea what’s in their portfolio, because their husband took care of everything. And I’ve worked with 30-somethings whose parents sent them to me because they saw the value of getting advice sooner rather than later.

Guess who’s better prepared for retirement?

People frequently ask me when it’s time to go see a financial adviser — and the answer is always, “It depends.” Fifty to 55 is good. Younger is better.

But the problem is that many DIYers aren’t ready to let go at that age. We get a lot of people — men mostly — who, when they’re 50, are filled with bravado. They like to play the market and brag to their friends about their wins. It’s an ego thing.

Unfortunately, that ego-driven portfolio is often lacking in diversification or any sort of holistic plan that will work for them in retirement. DIYers often stick with strategies and products they know (stocks from companies they’re familiar with, for instance) instead of looking for what will get them to their goals. There’s little or no thought given to tax-efficiency, mitigating risk or the fees and other costs that can eat away at earnings.

And, sadly, many investors don’t realize they’re in trouble until they’re older, the market is falling and they don’t have enough money.

Putting together a portfolio objectively isn’t exciting. As you get closer to retirement, you have to make choices that are safer and more stable. It isn’t fun, and you can’t learn it from listening to one workshop, radio show or YouTube video. That’s kind of like me watching YouTube to build a forced-air furnace for my house and hoping it turns out.

There are thousands of tax and Social Security rulings that can affect an individual’s or couple’s retirement outcome. A good financial adviser will look at your entire nest egg — your 401(k), your Social Security, your pension … everything — and plan it out to age 90 or even 100. Ask yourself if that’s what you’re prepared to do.

    • Do you have the time to follow up on every investment and make changes to your portfolio when major life events occur?
    • Do you have the discipline to ignore your ego and explore what’s really right for your personal financial situation and goals?
    • Do you have what it takes to dig into the minutiae of the tax laws, the market and non-correlated investments, and Social Security rules that are ever-changing?
    • Do you have a willing and interested partner who can take over if you are no longer able to manage your accounts? (Or someone who at least knows where you stand?)
    • Do you stay on top of the news (political, economic and foreign policy, etc.) and understand how current events might impact the market?

If you do, maybe DIYing is for you. But investing isn’t an easy thing.

Seeking advice from a professional doesn’t mean you’ve failed or that you must give over total control of your financial decision-making to that person. What it can do is help take some of the load off your shoulders, dial down the stress and help you find missed opportunities or mistakes before it’s too late.