Wealth Management Tips

Written by Dave Young, President of Paragon Wealth Management

 
photo by mandj98

Investment markets perpetually cause investors to do the wrong things at the wrong time when it comes to wealth management. Most mistakenly follow their emotions and act with their heart rather than their head. Below are examples of conversations I had last week with investors searching for better alternatives.

Comment:  "I'm really nervous about my investments. I've never really paid much attention to them, but I have decided that I need to do something."

Response:  "Don't just do something because you feel the need to act. Make sure your actions are strategic, make sense, and will improve your situation over the long-term. Doing something just to do it is usually a mistake, especially when you are investing.

Comment:  "This really nice man told me about an annuity that guarantees 7%, but if the stock market goes up, I'll get the benefit of that also."

Response:  These annuities are popular right now because they provide the illusion of safety, guarantees and market upside. In other words, they provide the best of all worlds. If they really provided the benefits they claim they would be great products.

If you read the prospectus rather than the sales literature, you will find their terms extremely confusing. Their prospectus is full of disclaimers and requirements that must be met in order for them to work. Most lock up your money with surrender charges that force you to stay in them for 7 to 10 years.

Why would anyone want an investment that forces you to stay invested in it for seven to 10 years? Good investments allow you to come and leave when you want. They stand on their own merits.

Comment:  "I talked to a financial advisor at Vanguard and they told me that I should put my money in their index funds because they have the lower costs and will participate in the market upside if the market goes up."

Response:  "Unlike the annuities mentioned above, their accounts actually should go up if the market goes up, which is positive. The negative side to it is that over the past 10 years, the S&P 500 and most other broad based index funds haven't returned anything to investors. To get a return of "zero" for a really low price doesn't provide much benefit. Look at the investments total net return over time, not just the internal costs.

Comment:  "I'm going to put my money into a CD because it is safe.

Response:  "Don't lock your money up at a fixed rate when interest rates are at multi-year lows. There are much better "safe" options available. Only lock your money up at fixed interest rates when the rates are relatively high.

Bottom line... Always follow a long-term, disciplined investment strategy when you invest.