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Money is a complicated topic. We all have ideas and associations with money that we picked up over the course of our lives.

But these hold us back from saving the money we need to retire on our own terms. The wrong ideas can lead to devastating financial consequences.

In this episode, I discuss 6 common investing mistakes and how you can avoid them to keep your retirement on track.

Show Highlights Include:

  • Why seeking the perfect retirement plan will have you working until you’re 90 (2:16)
  • A devastating market-timing mistake that can drain your retirement account faster than you thought possible (3:08)
  • Why you need to embrace risk to build a retirement account that will support your lifestyle when you stop working (4:41)
  • How focusing on daily stock changes causes you to tank your long-term   (9:09)
  • Why building a perfect portfolio is impossible and how to make the best decisions for your own retirement plans (10:24)
  • How the perfect life circumstances could prevent you from ever retiring (15:57)

To schedule your free retirement tracking meeting, specifically for first responders, head to http://pensionattention.com/ or call us at 805-409-8150.

Read Full Transcript

Welcome to Pension Attention, the best show for first responders who want to take control of their finances.

After advising Los Angeles city firefighters for over 12 years, financial advisor, Brad Barrett now shares how you can grow your wealth, build your legacy and enjoy a life of freedom. And now here's your host, Brad Barrett. [00:19.9]

Brad: Welcome to Pension Attention, the show for you, first responders who want more out of their deferred compensation and pension plan. My goal with this podcast is to reach you where you are at whatever stage in your career you are in to provide my nearly 15 years of experience working with both active and retired service members on their investment and retirement planning. My team of fiduciary advisors at ONE Fire and Police are dedicated to ensuring you take control of your finances and build the life you deserve. If you want to find out more about me or our team at ONE Fire and Police, you can go to our website, PensionAttention.com or you can reach out to us to set your free retirement tracking meeting, you can call us at (805) 409-8150 again, (805) 409-8150. [01:08.9]

So today we're gonna be talking about six things to avoid when it comes to investing. If you've listened to our previous two podcasts here on Pension Attention on why planning is important and why you need a financial advisor, these topics I'm going to bring up here when it comes to some of the reasons why a lot of the clients that I meet with have a tough time getting their financial plan in order, or if you're listening to this podcast in particular thinking, man, I really should be looking at this. Or I've heard of guys that have been with you and you put a plan together for them, but I just haven't been able to get there. These six things are some of the reasons why I bring up that I've noticed through my career have been more of the common ones. And as mentioned over the years, I've had no shortage of reasons as to why you can't get your financial house in order. And they all are legitimate. No doubt. [01:57.9]

And while the art of procrastination can take many forms, a common one that I've noticed is the quest for perfection. Investors or prospective clients I'm meeting with are typically looking for that ideal set of circumstances, which never really seemed to materialize and keeps them putting off the building of their financial plan. In planning or in our financial life, such as in life in general, the quest for perfection can be the enemy of progress. And this is especially true when it comes to personal finance, which leads into the first topic I want to bring up when it comes to waiting for the optimal time to invest or said differently, market timing. Look, I'm going to be honest about this one. It's a very common thing we all think about, which is back to my comment about waiting for that optimal time to invest at the optimal time to find the right investment or the right person to build a plan and an investment strategy with. But in truth, there never is a perfect time to invest. [02:57.0]

I mean, there will always be some type of in the world that will make people nervous. And this is a very common feeling and emotion and something that I want to talk about because that one emotion can cause a ripple effect on things. And you're probably listen to this kind of going, like, you know, I've been in this category or I've been in the category of having a captain or someone that's got more seniority on the job saying, Hey, you know, I've got with a financial advisor before you should, or you should talk with them or find your own and you're like, yeah, that makes sense. And then life happens, very normal. Okay. So if you're listening to this, it's very normal that that happens in our job a lot of times is advocacy and accountability, right? To make sure that we do get you on track and so that you can build the plan and therefore live the life you want to live and know that the overall plan that you have put in place is going to reach the goal that you have, which is a healthy and happy retirement. And we'll help you define that. I mean, if you think about it again, there will always be turmoil going on in our lives, whether it's political lives or economic lives or our personal lives, I mean, in the market, everything can affect it to an extent, and we need to make sure that we build a portfolio that sustains it. [04:02.0]

I mean, you have war in geopolitical risks and market gyrations and volatility, increasingly high stock valuations, as we've seen recently, a global pandemic, like we've seen this year. So trying to time the market for the best entry point could just lead to years of waiting, which leads us into our second point around what to avoid when it comes to investing. And it's searching for that perfect investment look, every investment carries risks. So it's really important that you meet with someone to go and value the risks and your risk tolerance for you personally, and for your family to build the right investment management portfolio, sometimes investments work, and sometimes they don't. So being diversified is a great idea and a great strategy. Anytime you take risk in a portfolio and such as life is to generate a return on that risk. We wouldn't take risk if there wasn't some sort of return out there. [04:52.3]

So investors who spend an inordinate amount of time searching for a perfect investment opportunity, namely one that'll provide higher returns with no risk, which really isn't out there is largely more of a fruitless pursuit. It's far better to spend time developing a strategy that provides a high probability of achieving your objectives, especially your financial objectives. And this is done by clearly defining your goals and your risk profile. So putting those together are massively important. We talked about this on our first podcast around why planning is important? Building, think of it this way, building the structure of a car, all right and then getting into the granular of building that engine, the investment portfolio that drives it to get to where you want to go, your destination, your goal, right? You can't have one without the other. And in my view, and again, this is my view from experience is that you want to have the planning in place because it makes the conversation around defining your risk profile, much more seamless and much more of a symbiotic relation between us as advisors for you and you as the client that we're on the same page when we're building out this investment management portfolio for you. [05:56.6]

And once we do that, we outline an overall asset allocation and the overall plan, that'll get you to that destination. This leads me into the third thing that I would say is one of the items to avoid when it looks to starting your investment life or investing in general is insisting on getting the best price when we've gone through building the plan and we've discussed the investment allocation and we've agreed or decided on an investment strategy, I've heard from clients sometimes, and this is not just my clients, but in general, we're hesitant to implement it, right? We want to kind of take a look at the market, feel it out and go through the motions of it. I mean, when the market drops below a certain price, then we want to invest. And that's the idea of this whole overall market timing that we want to try to avoid if possible, by building out a seamless plant. I mean this year in particular was right for this type of a conversation, right? I mean, after the stock market drops, you know, more than 30% in March around COVID-19 many investors who were in cash at the time were seeing that as a buying opportunity. [06:57.3]

But if you look at the ones that were in a portfolio prior to that and got nervous around, or didn't have the right proper advice around what we were seeing and the allocation around that, that moved to cash, it's hard to get back in, right? So taking the plunge and actually adding money to the market can prove difficult for a lot of people, if we don't have the plan in place, and you're not meeting with an advisor on a regular basis to walk through the risks associated, what happens in the market. Cause the market is some living, breathing animal, no different than your portfolio. We need to build the planning around that to make sure that we have it dialed in for what your goals were and continually discuss it so that we can assess the risk and the emotions that come with it. And if you're listening to this and you fall into one of these camps of things to avoid around investing and the procrastination, or kind of looking at the market timing, I really urge you to, to find that advisor you can build trust with and build that rapport, you know, dig into their experience and their knowledge to be able to help you understand what you're seeing when you're watching, you know, the market on the TV and even in water cooler conversations around the station or at your house or within your social circles, you can give us a call (805) 409-8150. My team of dedicated fiduciary advisors here at ONE Fire and Police can build that plan for you. [08:11.2]

And we'll do so by starting with taking a look at what we call your retirement tracking, taking a look at where you are now, and we'll do that for free. We want to get the information to be able to add value to what you have, and we can discuss it together. You can also go to our website, PensionAttention.com and you can find out more information about me and my team. Look, it's human nature to want the best deal. My grandfather always told me, it's not when you sell that makes the profit it's when you buy, you, make your money on the buy, however, waiting for a stock or an ETF or a fund to trade at some arbitrary price, often leaves an investor waiting indefinitely. And we want to avoid that because we want to make sure we systematically build the plan and monitor it and manage it. And if you have a prudent strategy in place with your or ones that we build for our clients, then we're not so focused on what's happening on the daily. We're focused on what's happening on the quarterly and annually and the five and 10 year numbers, the long-term objectives, because that's how we build a strategy that gets to a long-term objective of building retirement plan within your deferred comp plan in particular that fits your needs and fits into your overall risk profile. [09:16.8]

Do you know how much you should be contributing to your deferred compensation plan? Are you getting the most out of your current investment options? Looking at entering or about to exit the drop program? go to www.pensionattention.com to find out how we can help. [09:32.2]

All right, so around that this actually leads into the fourth item of wanting to create that perfect portfolio. Look, there's an infinite amount of literature on portfolio construction. I mean, you can do a quick Google search on modern portfolio theory or how to design a portfolio. And you can find countless probably videos and articles and white papers around how to build the proper portfolio construction. I mean, look two investors with the same exact risk profile goals and the same even time horizon may actually have different portfolios suggested to them by different investment firms, largely based on the fact that it's a communicative environment where we're discussing with the clients and really listening to what they have going on. And those portfolios may be reasonable. In fact, the more one reads and the more you make Google and learn and research, the more you'll actually conclude that there is no one way, no one correct way so to speak, to invest in the market. It's really more of an art, not a science. [10:25.6]

Now look, it's irresponsible, I think to develop an overconcentration any given stock or sector or industry I would add to this list also allocating your capital only to illiquid investments or said differently only to liquid investments is also something you want to be aware of and avoid. You want to have that happy marriage between illiquid and liquid. And what I mean by that is illiquid is more of a real estate type of holding, whether it's primary house, raw land or rental or something like that. You know, something when retirement, you can't just go knock on the door and say, Hey, I need groceries today. Give me money. Right? That's what your liquid accounts will come in. Liquidity being at the time of retirement drop in deferred comp plan, any VCRs, Cate money that comes out, right? So you want to have that happy balance between liquidity and illiquidity. The approach to a portfolio construction for us is to embrace diversification, embrace liquidity, and understand the investments that you're getting into. The philosophy won't protect investors against all risks. I mean, risks are inherent in there, but we can manage that risk appropriately. [11:26.5]

Before we get to managing risk appropriately and building this portfolio like I've discussed the fifth thing. I want to talk to you all about today. And if you're one of these people, which I have a lot of conversations around stations, a lot of times it's with guys, who've just got a few years on maybe five or 10 years on, right, is the fifth thing which is putting off saving for retirement, or even getting into the investment side of things until attaining that ideal career situation. When I'm at stations, I'll usually ask a question the first few minutes, when it comes to deferred compensation planning, and the question goes like this, how many of you started contributing to your retirement plan based on what you can afford? I ask this question this way, and it's usually greeted with a lot of hands in the air, which I appreciate the honesty and it's very common. Because we usually start that way around, Hey, I want to manage my today and I'll get to my tomorrow later. And that's a very common behavioral finance trait for anybody. [12:23.0]

So let's just get rid of the misnomer that it's something just about you listening to this or you at the station who's raised your hand hearing me talk, right? It's not just you. I want to be very open about that. And then when I usually meet with you one on one, or if at the station, we get a chance to talk one on one. I'll usually encourage you to save as much money as possible, but it's not just because that's the right answer. It's because if you think about it, not only do you get tax deduction availability on the pretax part of your deferred comp plan, but it also gets you started with understanding what your active duty pay and your overtime comes in with your affordability within your life. It also sets a tone for later as your life and your career grow. So this notion for a lot of people of putting off saving to retirement until, you know, maybe I get that promotion or I get other things going on in my personal life, like maybe getting married or buying a house or things like that, that all needs to come into play, no doubt. But it doesn't mean you need to forego the starting or even maybe increasing your deferred compensation plan contributions. [13:23.2]

I mean, I get it when we're first starting out with any job, right. Cashflow, isn't the greatest and you kind of anticipate, okay, I'll be able to save a lot more when I get promoted or something like that, right? This can be a wrong mindset. And when you're young with fewer responsibilities and financial commitments is generally the best time to save, you know, additionally putting money away while you're early in your career allows those dollars to benefit from compound interest. Decades of letting that money grow can meaningfully benefit your financial future. If you're one of those that I mentioned that are at the station, listening to this right now, give us a call (805) 409-8150. You can also go to our website at PensionAttention.com. Take a look at where you're at right now and actually truly understand, Hey, I'm contributing 50 bucks for an hour or a hundred bucks per paycheck. Understand what that's gonna look like 10 years from now, 20 years from now, or even 30 years from now, it may seem far off, but the, what you do today matters, it's a ripple effect. You get paid 26 times a year, every other Wednesday. [14:19.1]

Imagine if you focused on just one of those 26 every year and we become more efficient and we start increasing it little by little, we do that for our clients and it adds so much over time componential just works for you. You're already doing, if you're contributing the deferred comp plan right now, you're already doing a great strategy, which is called dollar cost averaging, right? You're putting fresh capital to work every two weeks into the market, right? So what we do as portfolio managers for you is we actually are able to build your own custom portfolio and that'll go into cash first and we implement it into the market instead of it going and just buying whatever funds you pick every Wednesday or every other Wednesday. Okay? So find that plan and if it's not us find someone you can build trust. And I'm a big advocate for advisory here. Okay? The more you get on track and the more you build rapport with someone, the better you are to adding to your financial future and the more secure you are when you get closer and closer to retirement. [15:08.8]
To continue with that thought process, we actually get into the sixth and final thing I bring up when it comes to the common items around what to avoid, or the common themes we see around people that are saying, you know, I hear you, I just haven't done it. And the sixth thing is holding off until you're in a comfortable life situation. The one prior we just spoke about was about holding off or being a little bit procrastinating around your current career situation. But life is also involved in this thing. Okay? The events in your personal life are often another deterrent about getting started. Whether it's buying a home or going on a vacation, there are plenty of personal reasons to put our finances on the back burner, but unfortunately life's events are constant and holding off for when your life “normalizes” can be a recipe for inaction. One of the strategies I use for clients, sometimes I call nudges. We can build automations into your personal financial affairs by just setting up small amounts of money to go into an investment account at regular intervals. You're already doing that with your deferred comp plan. [16:11.1]

But I also like to talk to clients about building intervals with regards to liquidity accounts, okay. Putting $50 $100 a month over to a liquidity account that somewhat out of sight out of mind. We want to start building well, we'll call the bucket planning short term, mid-term, long-term. Long-term is your pension, your deferred comp plan, eventually your drop, right? Short term would be your savings account. Okay? It could be items like your holiday helper to the credit union or whatever those things are, they're more short term within a year. That midterm is also really great category that most people overlook and it's really good around the corrosion of liquidity building liquidity. A lot of times I meet with clients, they have a couple of things going on originally. One they're either deferring to defer compensation plan, which is a great thing, right? Then they're managing their cashflow with their active duty and overtime pay. But then there's involved with some credit card debt sometimes. And something we're going to talk about real soon on this podcast is debt management. How to look at debt and how we manage that effectively. But that also doesn't mean we put off building some liquidity along the way. [17:11.2]

I'm usually talking about money that you'll very rarely see coming out of your paycheck, but you'll notice that its started going into an account that's yours that over time and not that long has some liquidity for you to use for those items like vacation, or maybe we set up a specific account built to fund a house purchase, but every dollar amount matters in the grand scheme of things. And having an advisor, someone you can build trust in is a really a wonderful way to help you as an investor; move in the right direction, no matter what life throws at you. And if you're listening to this podcast and you haven't done so already, and you want to look at finding that advisor, reach out to us, you can go to our website, PensionAttention.com, or you can give us a call (805) 409-8150. My team at ONE Fire and Police are here to assist you to build that plan for you. Don't do it for us. Don't do it for anyone else but yourself, because end of the day, you're building this for you and the ones you love. Thanks for listening today. [18:08.4]

Next week on Pension Attention, we're going to be discussing the four times when you should review your financial plan. We've talked about in our first episode, why building a plan is so important. And on the second one we discussed why having an advisor to help you build that and to build rapport in is so important. Now that if you're in that category, we discussed in one or two of those episodes, right around the planning. We're going to talk about when you should review them and the life events that come around us, that would prompt us to take a look at what we've already built. Before acting on anything discussed today, remember speak with a financial advisor near you about your specific situation, or again, if you'd like us to help you reach out to us PensionAttention.com or our phone number (805) 409-8150, where we can actually provide you a free look of free retirement tracking to understand where you currently are and help you build that plan that hopefully you're not putting off. I look forward to speaking with you next week until then stay safe. [19:08.3]

The information in this podcast is educational and general in nature and does not take into consideration the listeners personal circumstances. Therefore it is not intended to be a substitute for specific individualized, financial, legal, or tax advice.

To determine which strategies or investments may be suitable for you consult the appropriate qualified professional prior to making a final decision. [19:31.7]

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