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Personal investing has become much more important over the last couple of decades for many reasons.
First, there has been a large shift from defined benefit plans to defined contribution plans. This has transferred the responsibility of retirement income from the employer to the employee.
Many years ago, defined benefit pensions were the rule. With fixed periodic payments that were meant to last a lifetime, defined-benefit pensions offered employees safety and security and an assurance that the money would be there when they needed it most, at retirement.
Defined contribution plans, such as 401k’s, however are polar opposites in their approach. 401k’s and other defined contribution plans offer the possibility of magnificent returns. But the lure of those returns have charmed millions of employees to experiment in markets that they never dreamed they would have, or should have.
Another reason personal investing has become more important is the fact that we’re living much longer. And, since we are living much longer, we are suddenly being asked to manage investable resources through longer periods of time and therefore, more market cycles.
Retirement (as we currently know it) is really a modern event only. For most of history men and women worked until they were physically not able to work anymore. The ultimate retirement (death) was generally right at hand. For those folks who were unable to work, the only viable option was to rely on friends or family members to provide for them.
Certainly, there were always the well-to-do folks who could manage to pay for retirement in the sense that we’re discussing here, but the vast majority of workers had no chance at retiring, and most likely thought very little of it.
Our expectations now, of course, are very different. Who doesn’t want to walk away from their job in their early sixties, travel the world and enjoy the last 30 years of their lives free from the demands of their boss? Isn’t that what many of us have in mind?
Nice fantasy, but the combination of issues listed above illustrates the problem here. In a nutshell summary, working Americans are now being asked to:
Of course, professionals say that the more time between now and withdrawals on the account, the more risk you should take. This is mostly true, but remember that the volatility of your return generally increases with the increasing of risk. And, it can even create a negative return at different points in the life of the account, or the owner.
A good investment advisory firm will explain the risk and reward trade off to help you find your personal level of acceptable risk. This service will also do everything possible to eliminate unnecessary risks.
This is key. How can an individual possibly know if he/she is assuming more risk than is necessary for his/her personal situation? These are the problems, very important problems, that a good advisors will attempt to solve.
401kFundAdvice, an online investment advice service will identify, measure, and then manage those risks, giving you the best chance at optimizing the risk/reward trade off in your investment account. And we do it for 401k’s, IRA’s, and essentially any type of investment account.
401kFundAdvice is an investment advice service specializing in high quality, personal service.