Successful People as Investors: An Interesting Dichotomy

Successful people are some of the smartest, most strategic and forward thinking folks I know... though not necessarily with their own investments. As I work with more and more people on strategies to build, manage, and preserve their money, I'm amazed that folks who are inherently aggressive, solution oriented, and outside the box thinkers don't apply the same disciplined thinking to their personal portfolios. 

Here's a sampling of what I've been hearing from people who've since become clients, regarding the thinking behind their personal investment decisions:

My spouse handles our investments. This is my personal favorite. Reminds me of a media industry client we handled a number of years ago when I was an advertising industry executive. We'd sell creative work up the ladder through the division president, who, before approving anything, insisted on taking the work home to review with his wife--an interior designer, and a woman of "good taste." The truth is it doesn't matter who makes the investment decisions. What matters is how they're made. They should be made against clearly defined goals/objectives, a realistic time horizon for achieving results, and an honest assessment of your tolerance for risk.  

My retirement nest egg is in my company's stock. For your sake, I hope you're right. Unfortunately, lots of present and former employees at major corporations will now be working well into their twilight years, never realizing the comfortable retirement they almost had. Many of them were senior executives. The questions you should be asking are "Could this happen to me? Is my retirement money overweighed in my company's stock? Might it be prudent to liquidate a portion of that stock to better diversify my retirement portfolio?" 

The market's been pretty turbulent, I'm standing pat for now. Gosh, I hope that's not the counsel you're giving your own clients whose businesses might be struggling for share in a softening category only exacerbated by a difficult economic climate. Sure, the market's been volatile and confusing. That very uncertainty, however, might well be reason to reassess your current asset allocation. And, consider some adjustments to the structure of your portfolio. But don't be frozen with indecision. 

My investments are taken care of at work. Really? How and by whom? The HR/Benefits people? If what you mean is you have a 40I(k) plan and you're actively contributing through payroll deductions (which you should), you might ask yourself what investment strategy you used to determine your allocation percentages within the offered investments? And, if you should change jobs, what you'll do with the 40I(k)from your now ex-employer?

I'm not thinking about college costs, my kids are small. If you're not thinking about it, you'd better start. Quickly. If your kids are graduating within the next three years, estimates are you’ll be paying approximately $350,000 for tuition, room/board, supplies and other expenses at a private college. For parents of younger children, the costs will obviously escalate. If your child was recently born, expect to be up around $450,000 for four years at a private university. If you haven't looked into 529 college savings plans, do it. Soon.

An investment plan begins with a goal. Then, a strategy should be developed against that goal reflecting the proper asset allocation for you. You should execute against the strategy with a portfolio that fits your time horizon and tolerance for risk. Then, give the strategy some time to work. Goal, Strategy, Execution, Performance Monitoring. Sound familiar? 

David Biebelberg can be reached at dave@ewgadvisors.com or (732) 546-9353.