The Mirror Doesn't Lie
By Bob Payne, Managing Director and Chief Investment Officer (CIO)
Recently, I spoke to a client who is approaching retirement age.
We talked about how many people never really shift their investment mindset as they get older. The truth is you just can’t invest like you’re 35 years old if you’re retired or getting close to retiring.
Many people think of themselves as younger than they are
You can’t invest like a 35-year-old if you’re actually approaching retirement age
The risk of trying to make a sudden killing in the market often far outweighs the reward
And you know what the problem is? Mirrors. When I look in the mirror, I still see a handsome 18-year-old kid and keep forgetting that I’m actually 62. So deep down people realize they’re getting older, but when it comes to portfolios, sometimes that’s out of sight or mind. If you’re 37 or 35 like my sons Ryan and Chris at Payne Capital, you can handle these 40-50% declines that have happened twice over the past 15 years.
But when you’re ready to retire or retired already, your lifestyle can’t take that kind of hit. Many people are tempted when they get close to retirement, because they think they didn’t save enough beforehand, so they need to take advantage of the market while it’s booming. From a portfolio strategy perspective, that’s the biggest reason why I’ve seen people not make money over time.
We had a client once who sold their computer company. We worked together for 25 years and practically every year was a bull market. As they got closer to retirement, we reduced their exposure to equities and moved them into high-quality municipal bonds with an average coupon of 5-6% tax-free. But at the height of the bull market, right before the tech bubble burst, they started going to cocktail parties and hearing about how people were making a killing in tech.
So they felt they needed to participate and fired us. They transferred their accounts to a competitor, invested 100 percent in equities and ended up losing 65 percent of their net worth. Not only could they not retire after that, they had to go back to work. I’ve never forgotten that, because it was based on pure greed and hubris. So when we look in the mirror, let’s realize we’ve gotten older. But the good news is we’ve also gotten better.