The Planner's Perspective: Friendly Advice

Paul Morrone |

By Paul Morrone CFP®, CPA/PFS, MSA

Soaring equity prices make people as giddy as winning the lottery as they see their retirement plan balances rise during the year; and with this euphoria there are always people wanting to share how much money they’ve made. The office water cooler conversation turns to rates of return, hot stock tips and advice from a co-worker whose brother-in-law who is ‘good with money.’ Most of the time, people walk away from these conversations frustrated, conflicted or feeling like they are missing out on something. The first thing to remember is that many times people exaggerate (and sometimes flat-out lie) in these conversations, as ego trumps logic and numbers are generously rounded up. If they say they made 20%, I’d be willing to bet it is probably less. 

From the listener’s perspective, vital details that should be discussed are often left out. Maybe someone took a big gamble that paid off, maybe they got lucky and sold at the right time or maybe they have a sound investment plan that yielded positive results. The scary part is, you as the listener have no idea. You also (likely) have no idea what their personal financial situation really looks like. What other assets they have, their household income, the composition of their net worth, debt service costs, future anticipated expenditures or savings rates are probably not disclosed. You also have no idea as to what their goals are and whether they plan to accumulate for retirement, fund the purchase of a vacation home, save for college or pay down debt. All of these other unknowns are further compounded by the fact that you also don’t know the risk tolerance of other people, meaning they may be willing to take on more or less investment risk over a given time period than you are. The myriad of possibilities should leave you with more questions than answers as to how to address your personal financial situation.

Before running back to your desk and tweaking your retirement plan allocation, take a second to think. Have you developed a plan that is compatible with your personal goals and known financial resources? If so, when is the last time you have reviewed it? Is the plan yielding the desired results given market conditions and the assets owned in your portfolio? Are you evaluating the plan objectively and not in comparison to something you saw on TV or heard from a friend? If you’re saying ‘yes!’ as you read along, it may be that you are already better aligned with your goals than your counterparts as many people skip the details and focus solely on the bottom line.