Saturday, May 14, 2016

The Downside of Managing Your Investments for Retirement

Folks often tell me that they would like to manage their own investments, rather than leaving it up to an investment or financial adviser.  I self-manage so they are usually looking for advice from me.

It is less expensive to manage your own investments, you avoid the 1% of your assets per year that an adviser would charge.  This is important in a world where you earn only 3% on bonds and the S&P 500 return is in the low low single digits.  You also get to follow your own instructions perfectly since it is you that is making the decisions and making the investments.  It's all good, right?

Well, not 100%.  One of the problems is that you have no one to turn to for advice.  This is not a problem early in your life where you are managing a few tens of thousands and have 30 years of work and saving ahead of you.  You can fix your mistakes as you age.  However, when you get to the end of your saving and investing and start considering how much to spend in retirement, you are faced with a question with no clear answer:

"How much can I spend per year in retirement?"

You can google until your google is bing'ed and yahoo'ed but there is no definitive answer, so you are left on your own.  I think it would be less stressful if you had an outside adviser who could tell you "spend $XX per month this year and we will look at your investments again at the end of the year".  You don't have to make any decisions and take responsibility for any mistakes, and you have someone to blame if things go wrong, which is less stressful.  

Unfortunately, you can blame and/or fire this adviser but it won't fix the money problem.  So it is back to self-management of family finances for me.

Photo credit: Flickr