RETIREMENT SURVIVAL GUIDE
7 Tips for Success
Jeffrey A. Johnston, ChFC
President of Premier Investments of Iowa, Inc.
Table of Contents
Page 2 Introduction
Page 3 Survival Tip #1 Build a Personal Media
Filter
Page 5 Survival Tip #2 Don’t Allow Your Money to
Consume or Control You
Page 7 Survival Tip #3 Develop a Fair Rate of
Return
Page 9 Survival Tip #4 Understand the Value of
Asset Allocation
Page 11 Survival Tip #5 Never Invest Out of Fear –
Invest from Confidence
Page 13 Survival Tip #6 Financial Independence is a
Process not a Product
Page 15 Survival Tip #7 3 Most Important Questions
Introduction
I have been in the business for twenty-three years. Over that
time I have seen many ideas, fads, schemes, and products come
and go. However, year in and year out there seems to be some
constants that never change. This guide was written for you, the
average hard working American, who is struggling with the two
basic human emotions of greed and fear. I have outlined for you,
in simple terms, what I call my Retirement Survival Guide. I have
implemented these concepts in my practice
over the years and believe that these have
become our core philosophy at Premier
Investments of Iowa, Inc.
I am not convinced that $2.00 stock trades, low cost ETF’s,
24/7 financial shows, hundreds of financial magazines, get rich
quick guru’s, tapes, or classes will make you a better investor. (If
that were the case, then from 1990 - 2009 when the S&P 500 Index
averaged +8.2% per year the average equity investor would not
have averaged only +3.17% (see survival tip #4). However, this is
precisely the case. Everything is in place to make us better
investors, but that’s just not happening. Why?
1
I have used my dieting example many times in workshops to
illustrate my point. We have more information today than ever
before on weight control and healthy
eating. Just ten years ago we did not even
know what a saturated fat was! Yet, we are
still the heaviest industrial country in the
world and growing. The knowledge and
information is not the problem. The
problem simply put, is us. I believe we do
not need any more information, in fact we
need less. I hope that by writing this guide,
you will be able to see things from a
different perspective; one of realism and
confidence, not fear and greed.
Enjoy!
2
Survival Tip #1
Build an Internal Media Filter
What I Have Learned:
My most successful clients have the
tremendous ability to tune out the
external chaos
In our office, we call this the “Apocalypse de Jour.” It seems that
every year we can find reasons not to invest money or to sit on the
sidelines.
Here are some examples provided by Transamerica:
1940’s - Double Digit Inflation, WWII
1950’s - Korean War
1960’s - Vietnam War
1970’s - Oil Crisis, Double Digit Inflation, DOW 1,000
1980’s - Savings & Loan Crisis, Black Monday Crash
1990’s - Dot Com Bubble, Y2K
2000’s - Recession, US Downgrade, Subprime Crisis,
Eurozone Crisis, DOW 14,000
3
The scariest words we hear today are, “It’s different this time.” Of
course, it will always be different. You cannot control the chaos or
noise. You can only control how you react to it. Until we learn how
to build an internal media filter, we will never reach our full
potential in building true wealth.
Do Now:
Develop ways to tune out the media. Limit your daily time to 30
minutes and use your new found free time to do the following:
- Take a friend/family member out to lunch
- Read a book you have kept putting off
- Travel somewhere within 2 hours of home
- Go to a new restaurant
- Do absolutely nothing for a day
Key Point:
Stop feeling like you are always missing out on something.
4
Survival Tip #2
Don’t allow your money to consume or control you.
What I have Learned:
My most successful clients control their money;
they are not financial hoarders.
Ever watch the show Hoarders? I often see people so consumed by
watching their money grow and so determined to be rich that they
lose focus and sight of everything around them. I once heard a story
about a 68 year old grandparent that did not want to spend the $700
on a plane ticket to fly across the country to see her grandchildren,
whom she had not seen in five
years. She had an investable net
worth of $1.5 million dollars. At a
5% return, that represents
approximately 3.5 days of growth
out of the 365 days in a year! (Purely a mathematical point, not a
guaranteed return). Are you serious? What good is wealth if you
never enjoy it? It is often quoted that in our country the average
inheritance is spent in the first 2-4 years. Need I go any further?
5
Do Now:
- Develop ways to see the big picture.
- Live well within your means (income).
- Remember that memories are forever, possessions are not.
- Find time (this year) to spend some of your money.
- Expect the best, but prepare for the worst.
Key Point:
It’s about the quality of your life not the quantity.
6
Survival Tip #3
Develop a personal Fair Rate of Return
What I Have Learned:
My most successful clients try to beat their own goals,
never an index or the market.
It still amazes me how many people (and the media) believe that
financial independence is contingent on beating an index or the
market. Trying to beat anything other than your personal goal is
financial insanity! Herein lies the problem… most people do not
have a goal or plan. Northwestern Mutual recently found that 50%
of parents have no financial plan (Parents and Planning 2012 Poll).
In order to develop a personal Fair Rate of Return, you must have a
goal. I once asked a potential client to answer a simple question,
“If we decide our personal Fair Rate of Return (goal) is +6% per
year and the next year the market goes up +30% but you earn +8%
how will you feel?” His answer was, “I’d be disappointed you could
not keep up with the market. I expect
you to keep up with the averages!” He
is still not a client, nor will he ever be.
In this scenario he outperforms his goal
by 33% and yet he is unhappy. This
makes no sense to me. Why then even
have a goal? 7
Do Now:
- To establish a Personal Fair Rate of Return you must:
1) Have a target retirement date or distribution
(income) date.
2) Be willing to underperform the market on the
upside, yet outperform it on the downside.
- Do not get greedy; overconfidence is very harmful.
- Your goal needs to include inflation, taxes, expenses,
and the monthly income you will need from your
portfolio.
- Determine your personal risk level and what amount of
volatility you can handle?
Key Point:
Beating the market is irrelevant and a distraction.
Obtaining or beating your goal is the objective.
8
Survival Tip #4
Understand the Value of Asset Allocation
What I Have Learned:
My most successful clients own a little of everything all the time.
They don’t put it all in one basket.
My first investment class in college taught me the basic concept of
investment success. Get ready, this may surprise you… Buy Low
and Sell High. I know, complicated stuff. In and of itself, this
makes sense. However, when we add human emotions to the mix all
*?@# breaks loose, as evidenced by the chart below.
8%
7%
6%
5%
4%
3%
2%
1%
0%
8.20%
3.17%
7.01%
1.02%
S&P 500
Index
Average
Equity Fund
Investor
Barclays
Aggregate
Bond Index
Average
Fixed-Income
Investor
Source: DALBAR, Inc. Quantitative Analysis of Investor Behavior (QAIB) 2010. This chart displays the average annual returns for market indexes and the Average Equity and Fixed-Income Fund Investor and illustrates the negative effects that poor investor behavior – such as trying to time the market and chasing returns – can
have on a portfolio over time. Returns are compounded annually. Indexes’ annual returns assume an initial investment made in 1990. The Average Equity Fund Investor and Average Fixed-Income Fund Investor represent the aggregate action of all investors. The returns were calculated by treating aggregate industry flows as being representative of the average investor and applying these flows to an appropriate performance index. Past performance is no guarantee of future results.
Investors cannot invest directly in an index.
Investor Behavior Affects Returns
1990-2009
9
For the 19 years ending in 2009, the average Equity fund and fixed
income investor trailed the S&P 500 & Barclays Aggregate Bond
Index miserably. I know, I already said not to compare yourself to an
index, but hear me out on this. I doubt the actual returns they did
receive of 3.17% and 1.02% achieved their goals during that same
period. Why is this? I cannot be certain, but I bet it has something to
do with fear, greed, and asset allocation. In that same study, they
concluded that 93.6% of a portfolio’s returns were based on asset
allocation. (Please refer to the DALBAR chart on page 9).
Do Now:
- Diversify, Diversify, Diversify among all asset classes.
- Rebalance regularly
- Have non-correlated investments — Assets that do not
move in the same direction. By definition, you will have
some winners & losers
- Understand which stage of the investment cycle you are in:
* Accumulation
* Distribution
* Legacy
Key Point:
Remember, most of the time it is the singles, doubles, and triples
that win games; not the home runs!
10
Survival Tip #5 Never invest out of fear - Invest out of confidence.
Every so often I come across people who invested money in
something because they were scared into investing. An investment
should provide you with peace of mind, I get that. However, it
should also be looked at in the context of an overall plan, relative to
your risk level. I have learned that there are two ways people can be
motivated. They can be scared or they can be inspired. I prefer to be
a ‘glass half full’ type of person and would rather focus on
educating my clients on all the opportunities
and not get hung up on all the noise and
negative information. Please refer to Survival
Tip #1 How to build an internal media filter if
you need a refresher.
I recall a seminar/dinner invite a client received from another local
advisor. The words: mistakes, crash, loss, devastation, and
catastrophic were used repeatedly in an attempt to scare my client
into attending. It is important to emphasize the topics of discussion
when advertising a seminar, but this should be done in a more
proactive manner.
11
Do Now:
- Investing should be fun, exciting, educational, and
worthwhile. Not intimidating, scary, stressful, or
depressing.
- Always have a goal in mind when you see a financial
advisor for the first time. Avoid walking in with the
attitude of, “my CD just matured, now what do I do?”
Key Point:
Be proactive (positive) not reactive (negative) in your personal
investment philosophy.
12
Survival Tip #6 Financial independence (planning) is a process, not a product.
It never ends.
It is very important to understand the Financial Planning is a
process. It is the ongoing nurturing of your portfolio in order to keep
up with the stages of life as you go through them. It is NOT a
product. It has no expiration date. Too often a financial professional
has one answer to all your problems. Wham! They slam all your
money into one perfect deal. For years, we have utilized a simple
strategy of segmenting your money into
responsibilities. Again, this is not an investment
or product. It is a process to allow your portfolio
to pursue different goals and objectives.
In times of chaos, this concept has worked well. I
want to emphasize that my definition of well is
more emotional than financial. Having a Fair
Rate of Return (Survival Tip #3) will focus on the financial aspect.
It is our belief that you should see your financial advisor a minimum
of four times in the first year. After which you should meet at least
twice a year in order to tweak your plan if needed. You should not
need to contact your advisor for your review. A system should be in
place to enable your review to be scheduled in advance.
13
Do Now:
- Develop a strong relationship with your advisor (if you
have one).
- Be patient with the plan. Fruit does not grow on trees
overnight.
- Be honest with your advisor and expect honest answers.
- Know what you are spending for the advice. How can you
know if what you pay your advisor is worth the expense
if you are not sure what you are paying them?
Key Point:
A product may ease some of your concerns, but a
plan will be designed to solve most of them.
14
Survival Tip #7 Answer the 3 Most Important Questions
Do you have the:
Knowledge, Desire and Time
To effectively & efficiently manage your money now and as you
grow older?
If you answer yes to all three questions, then you don’t need me!
Congratulations, you are in the minority and are probably capable of
investing for yourself. I will emphasize probably. For everyone else,
it is very important to consider hiring a professional to delegate
these concerns.
Hiring a financial advisor is no easy task. Try to talk to at least two
and consider these important items:
* Why are you hiring an advisor in the first place?
* What is the firm’s overall investment philosophy?
* How are the staff and infrastructure set up?
* Is your planner captive or independent?
* How is the technology set up to access your accounts?
* Solo shop or larger entity?
* What happens to your account if your advisor is no longer there?
* How are they compensated and how often?
* Can you handle the truth if it needs to be told?
15
Do Now:
- Decide if you can answer yes to the knowledge, desire
and time questions.
- If not, consider getting in touch with a financial
professional.
- Everything has a cost. The cost of doing nothing can be
expensive.
- Have enough pride to know your strengths and limitations.
- Trust but verify.
Key Point:
Do not take the decision to hire a financial planner lightly.
16
In Conclusion
Obtaining true wealth is subjective and very difficult to quantify; it
is very personal. True wealth should allow you to own your time as
opposed to time owning you. In other words, you should be able to
do what you want, when you want, and with whomever you want.
Far too often in our pursuit to achieve true wealth, we get deflected
or distracted by the day to day aspects of life. Without a financial
goal or plan, how do you measure success? I truly hope this short
but concise Retirement Survival Guide has been of benefit to you in
your personal quest for true wealth. If not, I guess there will always
be some great late night get rich quick infomercials for you to learn
from!
Good Luck!
Diversification and asset allocation strategies do not
assure profit or protect against loss.
17
You’ve saved for your
retirement. Now enjoy it!TM
Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisory services offered through
Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Premier Investments of Iowa, Inc. are not affiliated.
Premier Investments of Iowa Inc.
3600 First Avenue NE Suite 100
Cedar Rapids, IA 52402
(319) 363-3811
(800)383-6590
For more information regarding Jeff or
Premier Investments of Iowa, Inc. feel free to visit our website at
www.premierinvestmentsofiowa.com
Or simply follow us on Facebook, LinkedIn or Twitter!
Jeffrey A. Johnston, ChFC
President of Premier Investments of Iowa, Inc. and
Host of the weekly Premier Investments of Iowa,
Inc. Financial Hour on WMT 600 AM
Radio.
Jeff is a graduate of the University of Northern Iowa
and has over 23 years of experience in the investment
and estate planning business.
Jeff is also a frequent seminar presenter.
Visit our website below for upcoming dates!