According to Financial Planning magazine, November 2012, page 19 the Financial Planning’s Retirement Advisor Confidence Index rose for the second straight month in October (2012), indicating continued optimism among advisors that now is a good time to move into equities. Here are two quotes from the article:

“Advisors reported a continued rise in risk tolerance, again shifting clients assets into equity-based funds, while decreasing the amount held in cash.” 

 “The index reflected a two-month decline in assets held in cash – from about 50% for August to 41.7% for October – as well as another gain in risk tolerance.”

On October 01, 2012 the DJIA closed at 13,515.11 and on November 16, 2012 it closed at 12,588.31.  This 927-point drop represents a 6.85% loss in value in the DJIA and punctuates the danger of trying to anticipate movements in markets during uncertain economic times.  The wrong “guess” by the collective “advisors” also highlights the fact that no one knows the direction or magnitude of future markets.  Here are quotes from a January 2012 article from Forbes On-Line written by Rick Ferri:

A recent Jefferson National survey found that 75 percent of financial advisors now believe they can beat the market using tactical asset allocation strategies. They are delusional. It’s not going to happen.” 

  “This strategy has not added value to client accounts in the past and will not add value in the future.  Multiple studies measuring mutual fund cash flows prove that advisors have no skill in timing investments and there is no evidence they are getting better at it.” 

 Financial advisors are not market gurus and shouldn’t pretend to be.”

Here’s a quote from a 2004 article in FA Magazine written by Christopher Parr:

“Within the institutional investment community there is a long-running debate over the likelihood of active mutual fund managers outperforming a passive index over extended time periods. Depending on the time period selected, it is not uncommon to find studies claiming that anywhere from 50% to 85% or so of active managers fail to beat ‘the market’.”

The foregoing is a strong argument that (a) the market is risky, (b) financial advisors may not deliver good results and (c) if you cannot afford to shoulder the risk the market is not a place for you.  This is especially true for those already in or approaching retirement because they have a finite amount of money to last them for the remainder of their life and no way to replace it if lost to a bad “guess” in the markets. 

 A much safer approach for the risk averse and the retirement-minded is to determine how much they can afford to lose without destroying their retirement and safeguarding the remainder from loss of principal.  Even better, why not lock up a guaranteed lifetime income with your “I cannot afford to lose retirement money” by choosing a fixed annuity to deliver the peace of mind you should be seeking in retirement?  Unfortunately, you’ll not get “annuity advice” from most financial advisors because fixed annuities are “museum pieces” that hold no excitement and no chance for on-going commissions or fees.  However, fixed annuities do deliver the guaranteed lifetime income as an option you can exercise plus you retain the flexibility and predictability that is needed for the longest and most expensive journey you’ll ever take: retirement.  Check out fixed annuities and see if they’re suitable for your retirement needs.

Shelby J. Smith, Ph.D.

November 2012

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