Whatever the amount of capital a senior citizen has, it is probably all he or she will ever have and, unlike others, the risk of short-term loss of capital or income is profound. Since they have concluded the earned income portion of their lives and are dependent on whatever they have accumulated and whatever has accrued for their benefit, there is neither adequate time nor opportunity for them to recoup from a loss.
A CASE IN POINT
On a recent late-night drive through Chicago, I happened to scan the AM radio dial, eventually honing in on a local station which brought in guest financial planning experts for two hours each week to assist call-in listeners.
A conversation ensued between a 64-year old caller, who was a soon-to-be retiree and the talk show guest for the week, who was touted as an expert in his field. After exchanging pleasantries, the caller described his background. It turned out that his impending retirement as company executive had caused some concern, as it had forced him to focus on the state of his financial affairs. In rummaging over the many financial statements from brokers, he had come to the frightening conclusion that he had not adequately prepared for the inevitable financial period of retirement. He was heavily invested in fixed-income instruments which, he had determined, would be unable to keep him in good stead after inflation. Therefore, he wanted some recommendations for individual stocks.
Before I could sympathize with the caller, the guest offered his two cents worth to the question of which individual stocks the man should consider. “Well,” the guest stated, “I hear from many people like you, who really don’t have adequate time to analyze the stocks of companies. You spend most of your time—and rightly so—taking care of your business and making money. My suggestion is that you leave the decision of which stocks to purchase to the experts and buy the shares of a good mutual fund.”
To many, this would seem to be sound advice. After all, it makes good sense to let a mutual fund manager, who invests for a living, make these seemingly difficult decisions. But, in fact, the guest expert has committed several errors, not the least of which is that he evaded the question altogether. The caller wants to know which individual stocks to buy, and the expert provided the “populist” response—Buy a mutual fund.”
However, my real problem surrounds a basic logical fallacy which both the guest and, eventually, the caller committed. The soon-to-be retiree works very hard for a living, earning what most would consider a respectable income. He endures all of those long hours, early mornings, late evenings, and extended weekends in order to bring home all of that money. But I submit that the man should also be willing to devote a few hours each week, or a few minutes each day, to account for the status of all of that money. Just because he works hard to make the money does not mean that he should work any less hard to keep it. Yet, the guest has suggested that he “hand off” to a mutual fund manager the responsibility of investing for his future.
One of my basic contentions is that money management is not a science. Anyone, with even a modicum of effort, can determine the best and the worst 100 companies in America. Experts, analysts, and financial planners are there to assist in this endeavor. But each person should recognize and accept his responsibility in the matter and do his own homework accordingly. The easy way is not also the best way, and the working man as well as the retiree should take stock of their own situations and specific ways to invest as a result.