Adapt or Perish

July 29th, 2014
in contributors

The Retirement Financial Decision
Sungarden Investment Management Article of the Week

by Rob Isbitts, Sungarden Investment Research

At Sungarden, we believe that over the past three decades, a combination of market behavior and the investment industry’s approach to investor education have conspired to create an environment that is extremely dangerous for many retired and pre-retired people.

Follow up:

A recent study by Koski Research for Asset Mark confirms some of the conclusions that we observe in our daily work of managing money, communicating with individual investors and financial advisors, and observing human behavior in the aggregate. The study was taken by 501 “mass-affluent” individuals (those with household investable assets range from $250,000 to $1 million) who identify themselves as the primary or shared decision maker about investments.

The study indicated tremendous confusion about the rival concepts of risk and reward. Investors are often conflicted and want to have their cake and eat it too. They also have unrealistic expectations, insisting on reducing risk through diversification of their assets…yet expecting to keep up with the stock market when it is rising (84% of those surveyed, to be exact).

Another conclusion of the Koski/Asset Mark study, which took place in April, 2014, is that investors are universally worried about investment catastrophe. This is the case though we are now seven years beyond the inception of the global financial crisis. The possibility of economic recession is still very much front of mind, with 97% of respondents expressing significant fear of such an event. 95% of those surveyed are concerned about the meltdown of a major financial institution.

To us, the solution to overcoming this paradoxical thinking before it bites you in the rear end starts with a very simple premise: you can’t approach investing as a perfectionist. As much as Wall Street firms try to sell the perfect solution to a retiree’s needs, there are tradeoffs on the way to pursuing whatever your goals are. Too often investors express fears yet do nothing to address them. And too often, their financial advisors brush their fears aside and cross their fingers.

At Sungarden, we see an investing evolution taking place: in markets, in investor attitudes and in how investors conduct their investing activities. We have responded by creating and managing a set of portfolio strategies which incorporate an approach to hedging to reduce the potential impact of financial catastrophe. We think that not doing this in today’s era is, for many retirees, a huge gamble and a big mistake.

Investors should pay very careful attention to how retirement investing has changed versus 10 or 20 years ago, get educated about it and then apply it to their specific situation. Financially-speaking, it’s a case of “adapt or perish.”


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