Why Your Financial Advisor, Should Play More Golf

Yes this is a self-serving statement, but it has its basis in the fact that creativity often requires a clear (not empty!) mind. The ability to freely associate among various ideas is more likely to occur when you're at ease. In this state, imaginative solutions can come forth.

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When Important is Not Important

Sam and Sadie have been happily married for over sixty years. A good friend asked Sam the secret of his successful marriage. "Well," Sam declared, "I was in charge of the big issues and Sadie was in charge of the small ones." The friend seemed confused by the answer.

"You see," Sam explained, "Sadie handled the small things, like what cars we drove, where we lived, and where the kids went to school. I dealt with the big issues—politics, the economy, world peace."

In the world of investments, you can be either like Sam or like Sadie. According to financial planner Carl Richards in a recent article in the AAII Journal, it's better to follow Sadie's approach. Instead of agonizing over the fate of Europe, the U.S. economy, and the daily fluctuations of the stock market, Richards believes it is more fitting to concern ourselves with something we at least have control over.

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The Meaning of "Failure" in Retirement Planning

Financial advisors are often asked:  "How much money do I need to retire?" Today, advisors are more apt to prepare a financial plan that determines the probability of your retirement success or failure, not a fixed dollar amount. In either case, the result of a complex analysis is articulated as a single number. We often attach great faith in this one number even though the underlying concepts may be misunderstood. We should be cautious as to how much emphasis we place on this number.

This does not mean that we should avoid engaging in retirement planning. Far from it. We must be careful, however, how we interpret the results. Properly understood, retirement planning can help us determine if we're on the right track. [Editor's note: The link is worth clicking, especially for Broadway fans.]

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The Illusion of Certainty

When it comes to investments, we often crave the comfort of certainty.  But the typical cost of known investment results is lower returns over time.  There is a need to embrace some level of uncertainty to obtain the reward of higher returns.  We  must, however, allow for sufficient time for the market to reward us for taking on this risk.

We should also be aware that "obvious" areas of potential return are not necessarily a sure thing.  Humility in making predictions is helpful.  Making big bets has its dangers.  Taking on too much risk may lead to undesired results.

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