By Brian D. Mann
This is the story of a client of mine and his quest to find a better way to manage his retirement money. As you will see, it took 25 years, but he finally lost his faith in the securities industry and saw the value of what we offer.
I suspect that many of your clients have followed a similar path. Thanks to the recent market instability, you should find even more clients interested in the safe retirement planning products that you have to offer.
Here is the story:
Thanks to lessons about saving for the future taught to him by his father, my client began saving as a young man, first to buy a car, then to buy a home and then to save for retirement.
He read quite a bit about investments as he majored in finance in college. What he was taught was that over the long run, stocks outperform all other assets, that there is no point in trying to time the market, and that individual stock selection is also a fruitless exercise. Thus, he invested 100 percent of his retirement savings in low-cost index mutual funds and tried to ignore the daily, monthly and annual fluctuations in the market.
His first gut check came in 2002 when he lost so much money in the market that his losses wiped out all the gains he had made over the prior 15 or so years of investing. Nonetheless, he stayed fully invested, trusting what he had learned in college and also what his mutual fund company kept reminding him in its frequent customer communications. He was rewarded when he earned all of those losses back in gains in 2003. And yet, he could not quite shake the feeling that he had dodged a bullet.
His next gut check came five years later in 2008, when once again he lost all of the money that he had ever gained by investing. Twenty years of remaining fully invested and trusting what he had been taught resulted in a 0 percent lifetime return. What he also noted were all of the financial experts -- authors, newsletter services, and television personalities -- who claimed that they knew in advance that the market crash was coming, that the signs were obvious and that the “smart money” people actually had made money from the crash.
This time, he was mad. He wanted to get out of the market forever, but if he sold his mutual funds then, he would have a huge capital loss carryforward on his tax return and no way to use it. So, he made the decision to stay in the market, but only long enough for his stocks to recover to the point where he would not be booking a permanent capital loss. He hoped that day would come, and fortunately it did by the end of 2010. He got out of his mutual funds and resolved never to look back.
But there was an unfortunate side-effect that came out of all of his market-watching over the prior two years. He now couldn’t stop paying attention, and the market kept going up. It’s like there was a huge party going on, and he was missing out. He decided to get back in, but he wanted to do it smarter this time, so he subscribed to some investment newsletters -- a lot of investment newsletters.
He quickly came to realize that all of the so-called experts contradicted each other. One expert said that a particular company’s stock was bound to rise in value sharply, while another prognosticated that it would drop precipitously. He plunged in, buying a few individual stocks, but that only added to the confusion. One company’s stock price doubled. Should he buy more because the position was successful, or was it now too expensive? Another stock dropped sharply. Should he dump it as a loss or buy more because it was now an incredible value? What about the stocks that barely moved in value? Once again, he decided to sell everything, get out of the market, and reassess what he should do.
By the middle of last year, 2011, he came to the conclusion that the market as a whole had more downside risk than upside potential, so he decided to do something he had never done before. He shorted the market, that is, he bet that it would fall. Unfortunately, the market steadily climbed. Once again he was losing money, and he was concluding that he must be the stupidest investor ever. Every fiber in his being told him to get out of that short position, lick his wounds and never go back.
But he resisted, and as you know, the market crashed. In the course of a few days, his short position went from a big loss to a huge gain. He may have been one of the few people in America cheering as the market tanked, but he had finally done something right.
Now that the dust has settled, I asked him what he has concluded from all of this. His answer was interesting. He said that his conclusion was that the stock market is hopelessly irrational and that he has no hope of figuring it out. He said that he now views putting his money in the market as little different from betting in Las Vegas. Thus, he has resolved that now that he is whole, he is out for good.
He now is implementing a strategy to put most of his retirement savings into annuities and cash value-building life insurance. Why? Because he knows that while they may not be exciting, they can be relied upon to grow in value over time. And that seems like a very good bargain to him.
Sometimes it takes a long time for clients to come to appreciate the value of what we offer. Our products often come under attack in the press because of their performance that is more tortoise than hare. But I am convinced that more and more people will come to see our products as this client now does, and that history will judge us well.
Brian D. Mann is the executive vice president and chief marketing officer at Partners Advantage Insurance Services. He is a multi-million dollar personal producer, coach and mentor for insurance professionals. Partners Advantage is a national insurance marketing organization that serves as a one-stop shop to more than 20,000 independent insurance agents, financial planners and broker/dealers.
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