8044 Montgomery Road Suite 163 Cincinnati, OH 45236
The Oxford Oracle
I Don't Know
Want to know if you're dealing with an honest investment advisor? Ask them this one simple question: "Where do you think the market is going?"
The Answer You're Likely to Hear
A really sophisticated investment advisor might say something like this:
"The recent positive aggregate demand shock may help the economy break out of the secular stagnation regime of the prior decade."
"At the same time, a decade of low GDP growth has pushed investors to seek out secular growth opportunities in order to generate higher returns."
"These are some of the factors likely necessary for a bull case to arise. By contrast, inflation just has to stay near current levels for another year for the bear case to materialize. While we think that's unlikely and not our base case, the outcome should become more apparent in six months."
I wish I could say that the narrative above was a joke, but unfortunately it was just published by one of the better known investment firms in the United States. I only highlighted a few parts for your amusement.
Do you have any idea what they just said? I'll give you a hint...the answer was somewhere between useless and worthless. I've seen politicians give a more direct answer.
The Answer You're Looking For
What the advisor should have said was "I don't know."
Followed by "But we'll help you build a plan to achieve your goals no matter where the market is going."
That's honesty. That's facing reality like an adult. That's treating the client with respect.
The Role of the Advisor
"I don't know." Let that sink in for a minute. What expert admits they don't know something? Aren't financial advisors always supposed to know where the market is going? Isn't that what financial advisors do for a living?
The advisor's role is to help the client ask the right questions. In this case, the future direction of markets tomorrow, next week or even next year really don't matter. In fact, for time horizons shorter than five years, you shouldn't even be in the stock market! There's simply too much volatility to ensure the money will be there when you need it for retirement withdrawals. This is one of the key principles we follow in Power of 5 Investing®. We're huge fans of stocks for longer-term goals like a 30 year retirement, but we balance this with a 5-year Stability Bucket to dampen the volatility.
A good advisor would do the following:
Discuss and define the client's long-term goals. Specific goals such as "Provide me and my spouse with an after-tax income of $6,500/month including raises for inflation throughout what we hope will be a 30-40 year retirement."
Build a financial plan that documents those goals, and establishes the savings, investment returns, tax rates and withdrawal strategies needed to meet that goal.
Once the plan has been agreed to then, and ONLY THEN, does the advisor begin to choose specific investments that over the long term will deliver the investment returns needed to achieve the client's goals. Once the client agrees on a strategy, the advisor will document all of this in a formal Investment Policy Statement.
Each year thereafter, the advisor and client will sit down to review any MAJOR changes in the client's life that may necessitate a change in goals and, if applicable, a change in investment strategy. The investments don't change unless the goals change.
What Do Most Advisors Do Instead?
Unfortunately most financial advisors don't talk about you and your needs; instead, they talk about themselves.
They present themselves as some sort of mystical seer, able to discern the future by staring at CNBC and a Bloomberg terminal all day. Perhaps they know somebody who knows somebody who knows what the Fed is going to announce tomorrow.
Most galling of all, these types of advisors treat their clients as simpletons who couldn't possibly know what to do with all the powerful facts the advisor knows. The only way you will be able to beat the market is by following their wise advice. It's shameful behavior on the part of the advisor and makes a mockery of the advice profession. It's time to put a stop to it. You can do a lot better than working with these charlatans.
I Don't Know, But I Can Help
Are you wondering where the market is headed? Are you concerned your portfolio might not support a 30+ year retirement?
We've been helping clients prepare for, and thrive in retirement for over three decades. Our clients' continued financial success is exceeded only by their success at the game of life.
When we build retiree portfolios at Oxford, we seek a balance between Stability and Growth following the principles outlined in our proprietaryPower of 5 Investingsystem. Our goal is to help clients achieve inflation-beating growth in their wealth, while managing through market downturns, ultimately helping clients leave a legacy to the people and places they love. Our system has been battle tested in 25+ years of market ups and downs and is ready for whatever the market can throw at it.
If you'd like to know where you stand on your retirement journey, click on the link below. We're happy to offer a free Get Acquainted meeting.