It’s a Great Time for a Risk-Tolerance Reality Check (

Financial advisers say clients often overestimate their tolerance for risk. But data suggest it’s really financial advisers who become more nervous than they expected when markets become volatile.

Advisers often underestimate their own stomach for risk significantly, by as much as 20 points (on a scale of 1 to 100), according to FinaMetrica, a firm that runs psychometric risk tolerance tests. The danger is that advisers can inadvertently push their perceived higher tolerance for risk onto clients when designing a portfolio, according to Tyler Nunnally, FinaMetrica’s U.S. strategist. The 800,000-plus tests FinaMetrica has analyzed show that most clients of advisers just slightly overestimate their comfort with investment risk.

There is something to advisers’ belief that their client’s risk tolerance seems to change with the markets. But Nunally argues that it’s not any change in actual risk tolerance, which he says is a stable trait. “There’s a perception that the market is less risky when it’s up and more risky when it’s down,” he says.

Whether risk tolerance is a fixed trait or a fluctuating state of mind, recent volatility in markets around the world makes now a good time to check your comfort with risk. While a wealth of free risk questionnaires are available, many are a waste of time, says adviser Curt Weil: “What was comfortable in December of 1999 was horrific in April of 2000.”

What Weil does to provide an objective reality check1 for clients is to simulate a decline of 50 percent in a portfolio and show a client how that would affect her ability to meet her life goals. After speaking with clients about how volatility is normal and should be expected, adviser Kevin Couper takes a similar approach to Weil’s, using a “worst-case” scenario that relives 2008 with a client’s current assets.

In the long run, the ideal portfolio mix is one that clients can live with across market cycles, regardless of short-term gyrations. But there’s this little thing called emotion, which can be hard to predict and control. And a greater exposure to equities may have snuck up on some investors who don’t rebalance regularly, so their risk may be higher than they realize when market volatility hits. 

Anyone willing to shell out $45 can take FinaMetrica’s 25-question test (or ask his or her adviser to spring for it). It asks such questions as, “If you had to choose between more job security, with a small pay increase, and less job security, with a big pay increase, which would you pick?” (Answers range from “Definitely more job security with a small pay increase” to “Definitely less job security with a big pay increase.”) Another: “When you think of the word ‘risk’ in a financial context, which of the following words come to mind first? Danger; uncertainty; opportunity, or thrill.”

A first practical step investors can take is to check that their exposure to stocks hasn’t grown beyond their comfort level. And separating one’s money into different buckets can help guard against getting too stressed in the face of market volatility. Money can be tied to short-, medium- and long-term goals, with each bucket having a different risk profile, says Weil. If the market’s swinging wildly and you know your immediate needs are covered in a short-term, conservatively invested bucket, you may feel more comfortable sticking with any higher-risk, higher-return investments in the long-term basket.

Another way to stop emotions from influencing your investing, as long as you have a smart long-term financial plan in place? Just take a vacation from checking your portfolio. That’ll help keep you focused on the long run—and maybe let you enjoy taking an actual break.

Wooley, Suzanne. “It’s a Great Time for a Risk-Tolerance Reality Check.” Web log post. Bloomberg. N.p., n.d. Web. 10 July 2015.

FFIG grow your practice

For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.


How Retirees Should Approach Interest Rate Hikes (


It’s difficult to predict whether or not interest rates will rise this year. If you’re retired and risk-averse, then you’re probably not living high on the hog from a savings standpoint. Did you know that the average savings yield in the first quarter of 2015 was a measly 0.09%? For someone in retirement, that won’t be enough income to live off of. Actually, for most retirees it wouldn’t even be enough to go out for a nice dinner once per year. According to Swiss Re (a Swiss insurance company), since 2008 approximately a half-trillion dollars has been lost in interest income due to low interest rates.

There haven’t been many solutions for savings-oriented retirees. The most common has been to work longer. This isn’t such a bad thing because it keeps the body and/or mind working, which can prolong life expectancy. Another positive is that these people have been building their eventual retirement savings a lot faster than they would through savings accumulation via a traditional savings account or certificate of deposit (CD). According to, the average yield on 1-year CD is 0.27%, and the average yield on a 5-year CD is 0.86%. (For more, see: How to Prepare for Rising Interest Rates.)

Rewarded for Risk

There are two ways to look at this. One, it’s unfair for speculators to be rewarded when savers are being punished. Two, life isn’t fair, and as an investor, you need to invest based on current conditions. Many retirees have made fortunes over the past several years thanks to record-low interest rates. These low rates have led to cheap money and the fueling of top-line growth via debt throughout many industries. This, in turn, has led to an exceptional rise in stock prices. It should be pointed out that those “made fortunes” are often just a comeback from the hit taken during the Financial Crisis, but it’s still a positive.

Then there are those who aren’t quite as risky but have still been chasing yield in long-term bonds. The low interest rate environment has made this a profitable trade. Many people are worried that a hike in interest rates will end this era of easy money, but are interest rates really going to move higher? 

Future Environment

Unfortunately, it’s impossible to predict the future investing environment with pinpoint accuracy. On the other hand, logic can be applied to current economic conditions in order to determine the likelihood of future events.

The Federal Reserve “might” hike interest rates later this year. Why? Because Federal Reserve Chairwoman Janet Yellen has said it was likely. But the Federal Reserve has continuously stated that it’s likely to raise interest rates in the near future for years. By always saying that it will soon raise interest rates, it keeps people believing that the economy is on the right track, but without action, these are just words.

The reality is that subprime home loans are making a comeback, and they’re on a tear in the auto market. On top of that, student debt totals $1.2 trillion, government debt is north of $18 trillion, the labor force participation rate has been on a steady decline, healthcare costs have been rising, and wage growth is nothing more than a pipe dream. Additionally, all that cheap money that has led to debt-fueled growth across numerous industries will come to a halt.

If rates are hiked, it will be a minimal move. This will lead to an even more complicated investing environment. On one hand, interest rates will still be exceptionally low, which should lead to stocks and high-yield bonds performing well. On the other hand, it’s all about direction on Wall Street. If institutional investors see the first rate hike as a sign of things to come and more capital is allocated to cash, the panic could spread quickly. (For more, see: Managing Interest Rate Risk.)

Fortunately, there is a simple solution. If you’re worried about interest rate hikes, then move to short-term bonds. If you’re not retired yet and you want to maximize your retirement savings potential, there are some other ideas to consider.

Planning for Retirement

The number one rule is to always take advantage of a 401(k) match program offered by your employer. This is free money. If you don’t take advantage of this opportunity it would be like someone knocking on your door, offering you a bundle of cash and you slamming the door on their face.

Another rule is not to leave your job to enjoy early retirement. The one exception is health concerns. If healthy, you want to remain at that job until you can collect your maximum Social Security benefits. Thirdly, if you have contributed the maximum allowed to a Roth IRA ($5,500-$6,500 depending on your age), then you can contribute to a non-working spouse’s Roth IRA with your earnings.

The Bottom Line

Savers have been punished while speculators have been rewarded in recent years. However, savvy investors, or those with good money managers, know how to adjust accordingly based on current conditions. It’s very difficult to predict whether or not interest rates will rise this year. If you’re concerned, look into short-term bonds.

Moskowititz, Dan. “How Retirees Should Approach Interest Rate Hikes.” Web log post. Investopedia. N.p., n.d. Web. 26 June 2015.
FFIG grow your practice

For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.

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3 Myths of Retirement Investing (


Humans have a long history of accepting misconceptions as facts: the myth that the earth sat at the center of the universe began with the ancient Greeks and endured well into the Middle Ages. Even today, common myths (Thomas Edison invented the light bulb, for example) are regarded by many as “facts.”

Given the tendency that society accepts misguided and unfounded ideas as truths, it isn’t surprising that investors often have misconceptions about investing.

Surveying our industry, I see three widespread myths that threaten the financial health of investors, particularly those on the cusp of or in retirement.

Myth 1: Reaching “a Number” Is Enough

Many retirees falsely believe the myth that reaching a magic number in retirement savings – often a seemingly large round number like $1 million – will ensure their needed retirement income. In reality, the focus should be on a more robust metric such as the Funded Ratio, which considers both the assets an investor has as well as their liabilities. These liabilities are the projected cost of their future spending based on their spending goal, age, marital status and inflation expectations. The Funded Ratio opens the door for the advisor to have a very personal conversation about the client’s situation.

Myth 2: More Equities Fixes Overspending

While increased equity allocations could help clients spend more in retirement if markets are good, some investors ignore the associated increase in volatility, therefore introducing sustainability risk to their portfolios. If markets aren’t favorable, increased equity exposure could be catastrophic for clients’ retirement plans.

Future results are never certain, so individuals that have a higher equity allocation, especially once they are already in retirement, may often find themselves even worse off than if they had kept a more conservative allocation. We believe that advisors should use customized retirement income projections to illustrate the results of various asset allocations, and then help clients choose allocations that fit their spending habits and capacity to bear market risk in addition to their psychological risk profiles.

Myth 3: Retirees Should Never Invade Their Principal

Many retirees believe they should only spend “income” (i.e., interest and dividends) and never touch the nest egg. While this is commonly perceived as a safer way to spend money during retirement, the approach neglects the actual spending wants and desires of individuals. It also encourages yield chasing, especially dangerous with the current low yield rate environment.

My point of view is that, ideally, individuals focus on the total return of portfolio (which includes interest, dividends, as well as capital appreciation) to build and manage their retirement wealth, and not be afraid to spend principal if they need to. When using the Funded Ratio as the guiding metric for spending and investment decisions, it becomes easier to make fact-based decisions about spending and saving both income and principal.

However, if an investor remains focused on an income-only solution and will simply not accept dipping into principal, it is critical to seek a responsible yield for the retirement portfolio. As I noted in an earlier blog posted on Russells Investments’ website, this can include key considerations such as understanding the risks of reaching for yield, balancing today’s versus tomorrow’s income needs, diversifying among multiple sources of income and adapting to changing market conditions.

The Bottom Line

Don’t let clients in or near retirement buy into these investment myths, potentially eroding their financial security. Retirement savings, spending and asset allocation should be tailored to each individual client’s situation. Remember, there’s no “magic number,” the capacity to bear market risk is important and there are responsible ways to structure cash flows.

Greenshields, Rod. “3 Myths of Retirement Investing.” Web log post.LinkedIn. N.p., n.d. Web. 25 June 2015.


For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.

Ups and downs: Advisors help clients face volatility fears (


Investors might as well get used to the market volatility.

Whether you’re looking at stocks, bonds or commodities, asset prices have been swinging a lot more wildly this year. The VIX, a measure of the stock market’s implied volatility based on option prices on the Chicago Board Options Exchange, has fallen from above 20 in January to the mid-teens, but bigger price moves across asset markets are rattling investors and challenging financial advisors to keep their clients committed to investing strategies.

“I don’t need to look at the VIX to see volatility,” said Barry Glassman, a certified financial planner and head of Glassman Wealth Services. “I talk to my clients, and I can see that volatility is back.”

Indeed, the major stock market indexes have had daily price swings of more than 1 percent far more often this year than last. Meanwhile, the yield on the 10-Year Treasury bond has risen by almost 75 basis points since bottoming at 1.64 percent in early February—its biggest sustained increase since mid-2013. Between the anxiety over coming interest-rate hikes by the Federal Reserve and more messy negotiations on Greece’s financial predicament, most advisors expect the volatility to continue.

“We’re in the sixth year of a bull market, valuations are at historic highs, and we have uncertainty about the economy and interest rates,” said Shannon Eusey, co-founder and president of Beacon Pointe Advisors. “I think we’ll continue to see a lot of volatility.”

So far, the stock market has recovered rapidly each time it has faltered in the last six months. Glassman said the uptick in volatility gives investors a chance to do some soul-searching.

“It’s a great opportunity for investors to assess the small dips we’ve had and consider how they would react to more volatility,” he said. “They need to know that a 10 percent correction in the Dow means an 1,800-point drop.

“If they’re uncomfortable with that, now is the time to scale back risk,” he added.

The volatility is also an opportunity for financial advisors to prove their worth to clients. Active managers, as a whole, have been killed by the major market indexes over the last several years. A good dose of volatility could give advisors managing diversified portfolios a chance to beat the indexes and to keep their clients from making emotional and often disastrous investment decisions.

Read MoreIs your advisor ‘mind-mapping’ you?

“The average investor lags the market because they don’t have an investment process and they buy and sell things on impulse,” said Ron Carson, a certified financial planner and founder and CEO of Carson Wealth Management Group. “This is why people want advisors who’ve been through tough times and euphoric times and know the mistakes that investors can make.”

Carson doesn’t see volatility as a threat but as a chance to enable investment strategies to work.

“Volatility can help or hurt, depending on how you react to it,” he said. “It’s your friend if you have an investment process and you have confidence in your positions. It reallocates wealth from those who don’t have a process to those who do.”

“A client’s expected return has to align with their expectations about volatility so they don’t bail out on the strategy.”-Ron Carson, founder and CEO of Carson Wealth Management Group

Carson runs 14 different investment strategies for clients, depending on their financial goals and tolerance for risk. They range from most conservative, targeting a maximum portfolio loss of 7.5 percent, to most aggressive, for those willing to tolerate a 20 percent loss or more.

He spends a lot of time making sure the investment strategy matches up with a client’s goals and expectations of volatility. If they don’t, things go badly.

“A client’s expected return has to align with their expectations about volatility so they don’t bail out on the strategy,” Carson said. “It’s a big risk if the client isn’t prepared for the volatility.”

Eusey at Beacon Pointe Advisors also thinks the more volatile environment is a wake-up call for investors.

“This is the time to really review portfolios to make sure they’re well positioned to deal with volatility and that they can help you achieve your long-term goals,” she said.

Osterland, Andrew. “Ups and Downs: Advisors Help Clients Face Volatility Fears.” Web log post. CNBC. N.p., n.d. Web. 23 June 2015.


For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.

Americans Are Taking Fewer Crazy Risks With Their Retirement Money (

To prepare for retirement, workers need to do two things: save enough and choose the right investments. The first is essential, and many Americans aren’t saving enough to retire on. But for those who are saving, there’s good news: Their retirement money is ending up in a better mix of investments. 

New data on the 3.6 million participants in Vanguard Group retirement plans as of the end of 2014 (there are now 3.9 million) show that workers are taking fewer extreme risks with their portfolios. 

Employer stock, for example. If you invest in your employer, and the company runs into trouble, you risk losing your job and your retirement savings at the same time. Data on Vanguard 401(k) plans show workers are ending up in this risky situation far less often these days.

Even a diverse basket of stocks may be too risky if it’s your entire portfolio. During recessions and market downturns, stocks are much more volatile than bonds. So, for all but the very youngest workers, most experts recommend a mix of bonds and stocks, with fewer stocks as you get closer to retirement. Some workers still bet their entire retirement on the stock market, but that has become a lot less common.

It’s also a mistake to avoid equities entirely. Bonds and cash are safer than stocks, but over the long term, equities have provided better returns. Portfolios with no stock exposure may struggle even to keep up with inflation. Luckily, the number of workers who are being too cautious is also shrinking.

As these extreme portfolios disappear, more balanced strategies are showing up in worker 401(k)s. Vanguard defines a “balanced” portfolio as one with 40 percent to 90 percent stock and less than 20 percent in employer stock.

The reason for these changes? Some workers have undoubtedly wised up since the recession. More important, employers have realized they can’t leave investment choices up to workers who know little or nothing about finance. Instead, workers are automatically being steered into recommended strategies. The most common are target-date funds, which automatically adjust exposure to stocks and bonds as workers get older. This year, for the first time, target-date funds are getting more than half of all 401(k) contributions.

Steverman, Ben. “Americans Are Taking Fewer Crazy Risks With Their Retirement Money.” Web log post. Bloomberg. N.p., n.d. Web. 17 June 2015.

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For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.

America’s Seniors Find Middle-Class ‘Sweet Spot’ (

WAXAHACHIE, Tex. — Most Americans suffered serious losses during and after the recession, knocked off balance by layoffs, stagnant pay and the collapse of home values. But apart from the superrich, one group’s fortunes appear to have held remarkably steady: seniors.

Supported by income from Social Security, pensions and investments, as well as an increasing number of paychecks from delaying retirement, older people not only weathered the economic downturn that began in 2007 but made significant gains, a New York Times analysis of government data has found.

As a result, America’s middle class is graying.

People on the leading edge of the baby boom and those born during World War II — the 25 million Americans now between the ages of 65 and 74 — have emerged as particularly well positioned in the nation’s economic timeline. While there are plenty of individual exceptions, as a group they are better off financially than past generations and may well enjoy a more successful old age than future ones, even those merely a decade younger.

“These are people who have been blessed with good economic circumstances, especially those who were able to ride the wave of postwar economic growth,” said Gary V. Engelhardt, an economist at Syracuse. “They’re definitely in a sweet spot.”

Older Americans’ ability to rise during the postrecession years when most households were falling reflects a broader trend that has unfolded in recent decades.

In the past, the elderly were usually poorer than other age groups. Now, they are the last generation to widely enjoy a traditional pension, and are prime beneficiaries of a government safety net targeted at older Americans. They also have profited from the long rise in real estate prices that preceded the recession. As a result, more seniors now fall into the middle class — defined in this case between the 40th and 80th income percentile — than ever before.

Median income for people 75 years and older has also risen, but not as much as it has for people in the 65-to-74 age group.

One of this relatively fortunate group is Monette Berryhill, 72. Six days a week she descends from her second-floor apartment for a treadmill workout in the poolside fitness room of her gated complex here in Waxahachie, south of Dallas.

A widow who says she enjoys her freedom too much to date, Ms. Berryhill dines out with friends from time to time and recently took in a country music concert. Her yearly vacation is a San Diego trip to see grandchildren, but this year she expects to splurge on an Alaskan cruise.

Ms. Berryhill’s past career in customer service at two banks did not make her rich. But her retirement is comfortable.

“I feel like I’m doing all right,” said Ms. Berryhill, whose red-framed glasses offset her snowy, spiked hair. “I really enjoy it.”

Gains Mask Inequality

Some researchers have found that the economic success of seniors is masking an even deeper gulf in income inequality between the upper tier and everyone else than what is evident in the overall statistics.

“It’s not so much that older people are experiencing unseemly gains in income,” said Alicia H. Munnell, director of the Center for Retirement Research at Boston College. “It’s more that middle-aged people are not seeing income growing or even keeping pace with inflation.”

Nearly half of seniors ages 65 and up consider themselves in excellent or good shape financially, according to a Pew survey last month, in contrast to younger baby boomers, who view their circumstances less favorably.

More secure in their finances, many older Americans have congregated in traditional retirement communities. The Villages — a Central Florida haven for seniors with its low crime and dozens of golf courses — has been the fastest-growing American metropolitan area for the last two years. Millions of other elderly people have settled in middle-income suburban and exurban areas like Waxahachie.

Living in the muggy weather and neighborhoods of classic gingerbread houses, most seniors here are thriving, riding an overall population boom. But the current crop reflects some different choices from those who lived in the area three decades ago. For one thing, many more of them are working to supplement their income.

“The whole meaning of retirement is changing,” said Gary Koenig, vice president for economic and consumer security at the AARP Public Policy Institute. “People are living longer; they have to fund more years of retirement.”

Charles Kozlovsky, 73, retired from his job driving an 18-wheeler in 2009. Two years later he went to work as a school bus driver. The job keeps him busy but the work can be stressful; on a recent day a student was suspended from his bus for bad behavior.

In between routes, Mr. Kozlovsky goes to the senior center, a popular hangout for its 1,350 members that offers everything from poker games to Zumba for anyone 50 and up. For holidays, he and his wife play host to grandchildren who live nearby, setting up tables in the garage and back porch to squeeze everyone in.

The couple tend their backyard lemon and peach trees; sometimes they take trips to Branson, Mo., to see musical shows. Mr. Kozlovsky particularly enjoys his meticulously restored, shiny red 1957 Chevy, which he shows off in the parade at the annual National Polka Festival in nearby Ennis.

“Things got a little bit better when I started driving a school bus,” Mr. Kozlovsky said.

As recently as the late 1990s, only one in five Americans in their late 60s had a job. Now, that number has jumped to almost one in three. And unlike in their parents’ generation, more women are earning paychecks than in the past, contributing to household income.

Researchers say these factors are in large part responsible for the substantial rise in median household income that seniors in their late 60s and early 70s have experienced since 1989, even as Americans in their prime working years have mostly treaded water or lost ground.

Not everyone, of course, can work later in life. Health problems and age discrimination present major hurdles. And many of those who find jobs consider them barely adequate.

Pat Cherry, 72, has been earning minimum wage at a job in the library of the city-run Waxahachie Senior Activity Center. Ms. Cherry, who is divorced, had to retire early from a bookkeeping job after an autoimmune disease caused her to miss too much work. She could barely pay her bills until she found the part-time job through a government-sponsored work program, but it expired last month.

Ms. Cherry is worried no one will hire her again. “I need the money desperately,” she said.

Still, for those seniors who manage to work longer, the benefits can be significant, providing a much-needed enhancement to retirement income. And for those with enough money from a job to postpone receiving their monthly checks from the government, the value of future Social Security payments rises by about 8 percent for each year of waiting, up to age 70.

Social Security benefits make up more than half the total income for a majority of the nation’s elderly — 52 percent of married people and 74 percent of unmarried people, according to the federal government.

Kathleen McGarry, an economist at the University of California, Los Angeles whose research focuses on the well-being of seniors, calls Social Security “the single most important tool in combating poverty among the elderly.”

For Jim Engel, 72, his government benefit offered a lifeline after he lost his bakery business during the recession. The checks let him put off the sale of his nest egg, a Tennessee walking horse barn, allowing time for property values to recover.

“I feel blessed,” he said.

Extra Responsibilities

To be sure, many older people have trouble making ends meet and some are saddled with responsibilities that exceed the reaches of the safety net. Mary Walker, 74, who fled New Orleans during Hurricane Katrina with no more than an extra pair of underwear in her purse, is now raising two young great-grandchildren on her own not far from Waxahachie. “At this age I shouldn’t be struggling,” she said.

But older Americans in general are significantly wealthier compared to previous generations.

The median assets of people ages 65 to 74 doubled between 1989 and 2013, a far greater gain than other age groups experienced. And while there has been a decline from the peak since 2007, largely because of the real estate bust, this age group lost less than others.

Ms. Berryhill, the widow in the gated complex, had no debt on her home on three acres when real estate prices were plummeting. By the time she put her house on the market in 2011, it sold in one week, at a significant profit. Besides that cushion, she gets about $1,600 a month in Social Security and has proceeds from retirement accounts.

She pays nearly $900 a month for a spacious, one-bedroom apartment decorated in red — the sofas, the computer mouse, the plates and even the napkins carefully folded into wine glasses are all red. On a recent day she bought an inflatable palm tree for her granddaughter’s luau-themed birthday party.

Government data on consumer spending reflects the new reality. Adjusted for inflation, older Americans spent 18 percent more per household in 2013 than in the late 1980s, while spending for other age groups remained relatively flat. Higher health care costs, which fall more heavily on the elderly, accounted for a portion of the difference, but seniors spent 57 percent more on entertainment, and significantly more on a wide range of items, including homes, rental cars and alcoholic beverages.

Ms. Berryhill was 66 when she retired. Her husband, Warren Berryhill, died of heart problems seven years ago. At age 68, he was still working full time as a debt collector.

“We thought it would give us more money to retire on when we did retire,” Ms. Berryhill said.

Ms. Berryhill is much better off than her parents, who grew up during the Depression. Her father, who was a gasoline truck driver, had to retire at age 61 because of a heart ailment. Her mother did not work outside the home. They were always able to pay their bills, but Ms. Berryhill said they never took a vacation trip, let alone left Texas.

“We weren’t rich but we didn’t hurt for being hungry or anything like that,” Ms. Berryhill said.

She worries how her two children will fare. Their paychecks are bigger, but Social Security payouts, she fears, could be smaller when her children reach retirement age. They might have to take out loans to help pay for their children’s college educations. They have 401(k) savings plans at work but those are not as generous as her employer-sponsored pension.

But she always taught her children to save, and she cannot do much more now, she says, than hope for the best.

Gebeloff, Robert, and Dionne Searcey. “America’s Seniors Find Middle-Class ‘Sweet Spot’.” Web log post. CNBC. N.p., n.d. Web. 15 June 2015.


For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.

6 questions you should ask about variable annuities (


Like any financial tool, a variable annuity can be a great addition to your client’s portfolio. Used properly, it can help manage the amount of taxes they’re paying on your money while also providing growth and security for their retirement years. There are some nuances, however, that you may not be aware of. Here are some questions you should ask about any VA contract your clients are considering, or possibly those that they already have from prior advisors.

1. How much is deducted in fees per year?

Variable annuities, unlike the fixed variety, are a security, and money placed into them will in some form be invested into the market via a subaccount, which typically mirrors an existing mutual fund.

Just like a mutual fund, those subaccounts have annual fees attached to them. A typical variable annuity will also include other fees, such as M&E expenses. Any riders granting additional benefits may carry fees as well. Not all of these expenses are always outlined clearly in the contract and may only be listed in the prospectus — a dense, lengthy document that can be daunting to read.

All told, these fees average out in the 3 to 4 percent range on most contracts, meaning that a year when the contract gains 8 percent — a pretty good year by most standards — only nets a gain of 4-5 percent.

While this doesn’t mean that the VA is a bad choice, be sure to add up all of the fees being deducted each year so that you have a realistic expectation for the contract value.

2. How long is the surrender?

At first blush, this may seem like an obvious subject to cover. However, with variable annuities, unlike the fixed variety, you have a bit more freedom in how long the contract’s surrender period will be. This is because, among other things, while fixed annuities are ultimately tied to the same market forces as other safe vehicles such as bonds, the subaccounts in variable annuities are much more varied. This results in far more options available to you, namely much shorter surrenders than are typically found in the fixed world.

By choosing a shorter contract, you can keep the option open to move the money later on if your client’s needs change or the market changes — this mobility can be a big factor in an annuity purchase, and one we’ll talk about more a bit later on.

It is even possible, in certain cases, to obtain a variable annuity contract that does not include a surrender charge at all! This mostly eliminates the main obstacle to most annuity purchases: the worry that the client will need the money before the surrender period ends, and be forced to take a loss due to the penalty. In turn, this gives you more freedom to focus on what matters most, which is choosing a contract that will offer the greatest benefit over the long haul.

Of course, surrender-free contracts are not the norm, and in most cases you will have some period of time where a full withdrawal carries penalties. Check out all the options available before making a decision.

3. Will I be able to move this money?

A dramatic drop in the market will have an equally dramatic effect on the value of your contract. Naturally, your account value will fall, but the repercussions go beyond that. This has to do with the prevalence of income riders, also known as guaranteed minimum withdrawal benefits (GMWBs).

A large portion of the thousands of VA contracts purchased every month carry an income rider — an added benefit that provides a separate “account” that will increase at a guaranteed rate every year, and can never fall due to market performance. The exact percentage of VAs with this type of rider varies a bit depending on the source, but is generally agreed to be well over half; they are a fairly ubiquitous feature. When a lifetime income stream is activated, this income account is used to determine the size of the scheduled withdrawal.

If a large market drop occurs, the account value may fall dramatically, but the income account will remain where it is. Should you ever decide that you want to give up the contract and move the money elsewhere, you may find that your rider prevents you from doing so. This is for suitability reasons — a receiving company will be very unlikely to accept funds that come as a result of the client “giving up” a large income account, even if you submit a statement that they no longer want it. Markets can change a lot over a period of years, and this could mean that your clients are now in a contract that isn’t the most beneficial option available.

If you aren’t certain that you’ll want to use the funds for income and think you may want to move them to a different vehicle later, consider making some adjustments to your plan.

4. When will my client need income from this money?

Since variable contracts, like all annuities, are based around the need for lifetime income, it’s important to consider where the contract you are looking at fits into your plan to fulfill that need. Annuities have come a long way over the last couple of decades, and the days are long past when buying one just meant exchanging some cash for a stream of payments that stops when you die. While that’s still at the core of the product class, there are now myriad ways to take income from an annuity, and as such it’s important to consider which will work best for you.

The most common is the aforementioned income rider. Even within that group of products, however, there is a lot of variation, as many companies offer them and some even offer several. Choosing the right withdrawal method, then, becomes just as important as choosing the right accumulation method. Some are great for starting an income stream immediately, while others shine after a deferral period of five years or more.

It may also be that you aren’t selling this contract for an income need at all; along with all of the new ways to take income have come a multitude of uses for annuities that do not involve income at all. In that case, it might be best to forego a lifetime income option in order to eliminate the associated fee and thereby improve the yield.

5. Why is the carrier offering to buy out my contract?

In the years following the financial crisis of 2008, many annuity contract holders were wondering how they were going to retire on half of what they thought they had. That’s why it probably seemed like a godsend when their insurance companies started offering to buy out their contracts, surrender-free, for a big chunk of cash.

Should your clients receive such an offer, consider it carefully. If the company is offering to buy out that contract, it’s because they want to get rid of it. If that’s the case, it probably means the contract holder would be giving up something good.

Many of these offers came about due to the aforementioned frequency of income riders attached to VA contracts. By guaranteeing income based on a much larger number than what is currently in the account value, the carrier may find itself losing money on that contract. In that case, it makes sense to buy it out and take a smaller loss up front than to bleed “free” money to the client for years once the account value hits zero.

If you receive a notification that the carrier is willing to buy out the remainder of a client’s annuity contract, examine it carefully and weigh the benefits versus the costs before making a decision.

6. Am I being forced into an allocation?

Similar to the buyout offer, your clients may receive a notification from your variable annuity provider that their allocations are being changed. Depending on what changes are made, this can have a significant impact on how the contract value performs, particularly over a long period of time, as may be the case if that particular contract still has years to go on the surrender period.

The reason this may happen is again to stem losses that the carrier may be incurring on the current allocation; depending on the terms of the contract, the carrier may be able to adjust it to ensure that it remains financially feasible to keep it in force. While it’s tempting to label this as a “greedy” move by the carrier, it is important to remember that carriers issue thousands of contracts and are required by law to maintain solvency in the event that those contracts need to be paid out.

For you personally, however, this still means that you may be moved to a less-risky allocation that is not earning as much as the one you originally chose. If your client’s still ten years or more from retirement, this can make a big difference in the amount they eventually have to retire on.

When selling a VA, see if the contract states that the company can change your allocation later on. If you get such a notice on a contract that’s already in force, examine what your options are and if you should look at other options to get the portfolio your client needs.


For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.

Age and risk tolerance key to mastering asset allocation (

Part art, part science, asset allocation is the mix of a portfolio’s stocks, bonds and other investments that can help it meet a particular goal. In an oft-cited study, Brinson, Hood and Beebower noted that asset allocation—not investment acumen or market timing—accounts for more than 90 percent of an investment’s return.

Asset allocation is supposed to limit the downside by spreading risk around. When some asset classes falter, others rise, the thinking goes.

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But in the 2008–09 market rout, even the most diversified portfolio took a beating as all asset classes sank in tandem, and it took many years to recoup those losses.

Many investors responded by retreating out of stocks. It took them many years to tiptoe back in.

“You need to think about the asset allocation that’s going to keep you invested over the long term,” said Robert Stammers, director of investor education at the CFA Institute.

Your age may dictate your asset allocation. But you need to temper it with your own investment behavior, Stammers said.

Building blocks of asset allocation

The main difference between aggressive and conservative portfolios comes down to the balance between stocks and bonds. There’s little difference between the stock portfolio of a 20-something and that of a retiree, other than the amount of stocks each owns.

Within equities, financial professionals urge investors to make sure to diversify among domestic and international stocks, since they often move in opposite directions. Also include small- and large-cap stocks to capture the performance of different company sizes.

But investors don’t need to slice their equities too thinly with alternative investments. “Alternatives are very confusing, and even a lot of advisors aren’t that familiar with them,” said Dory Rodriguez, wealth advisor with HighPoint Planning Partners.

Real estate is an exception, and many financial advisors recommend 5 percent to 10 percent allocation toward real estate investment trusts in most portfolios. However, REIT dividends are taxed as ordinary income, so hold them in tax-sheltered accounts, such as 401(k) plans and individual retirement accounts, to avoid the tax hit.

When it comes to bonds, a mix of corporate, Treasury and high-yield bonds diversifies across industries and interest-rate exposure.

Decade by decade

Below are the recommended asset allocations for investors saving for long-term goals at different ages.

20s to 30s: The conventional wisdom holds that people in their 20s and 30s can load up on risk because they’ve got plenty of time to ride out inevitable rough patches. Many advisors recommend all-stock portfolios for this demographic.

But not every young investor can stomach what the market dishes out. In fact, millennials—the generation born between 1982 and 2004—are decidedly skittish when it comes to stocks. According to personal finance website, just 26 percent of people under 30 own stocks at all.

That’s why certified financial planner Joe Pitzl, a partner with Pitzl Financial, believes young investors may need to ease into stocks. “If you take that extra risk early on and scare them so they never take that extra risk in the future, then you’ve done them a disservice,” he said.

For nervous investors, Pitzl suggests a 60 percent stock allocation with the remainder in bonds, staying with this mix through an entire market cycle. He wants investors to experience the euphoria of bull markets and the misery of bear markets. “It lets them become comfortable with stocks, and then later on I might move them toward 70 [percent] to 80 percent,” he said.

40s to 50s: In middle age, you’re likely hitting your peak earning years, though your financial commitments may be peaking, too (e.g., college tuition … need we say more?). Some investors may feel comfortable with a big dose of equities, but others might want the added stability that bonds provide.

“If you save well and have put money away, then you can probably invest in less risky investments,” said Stammers of the CFA Institute. “It’s the people that wait until their 40s and beyond that really have to dial up the risk.”

Jesse Abercrombie, a financial advisor with Edward Jones, recommends a portfolio of 60 percent in stocks and 40 percent in bonds, though those with a greater risk appetite can go higher in equities.

Given today’s near record-low interest rates, Abercrombie cautions investors to stay at shorter maturities for bonds and put some money in high-yield bonds, which are less sensitive to rate hikes.

“Asset allocation is going to change over time,” he said. Be prepared to make changes when your investments veer 10 percent to 20 percent away from your original allocations through rebalancing. “Look at areas that are undervalued, and look to allocate more there,” he added.

60s: Financial advisors used to recommend taking 100 and subtracting your age to come up with the right stock allocation. This ignores advances in longevity and the need for greater growth at later ages, noted Stammers.

“Now we’re saying that it’s more like 120, because you’ll still need the return engine,” he said.

For someone in his or her 60s, that would mean a 60/40 portfolio of stocks and bonds. Those playing catch-up, though, might need to lean more heavily on stocks to power their savings. “I would tend to be higher on the equities, assuming you don’t have a gold mine,” said Philip Lee, a CFP with Modera Wealth Management.

“Your portfolio has to last 30 years. If you significantly overweight fixed income, it will be difficult for your portfolio to preserve your buying power.”-Joe Pitzl, partner at Pitzl Financial

But investors must balance their needs for growth and stability. A portfolio decline early in retirement can be devastating for many years to come, because you exacerbate portfolio losses with withdrawals. For that reason, if investors have a significant equity stake in their 60s, Lee recommends pairing it with a home-equity line of credit that can temporarily be used for cash needs if a portfolio is down.

“Do it while you’re still working and can qualify,” he said. “Yes, [the bank] may deduce that you’re going to retire next couple of years, but if you can produce a W-2, you should be able to get one.”

70s and beyond: It’s tempting to think that your asset-allocation decisions are done now that you’re retired. Hardly. Even at retirement, your need for growth is great.

“Your portfolio has to last 30 years,” Pitzl said. “If you significantly overweight fixed income, it will be difficult for your portfolio to preserve your buying power.”

By the same token, retirees need stability. An evenly split portfolio between stocks and bonds is reasonable, advisors say.

To provide stability, advisors recommend a bucket approach. Put a few years of needed income in short-duration bonds to fund your spending. The rest can be invested for growth; you can replenish your spending bucket when markets are up. And if they’re down, you’ve got enough cash on hand to ride out the storm.

—By Ilana Polyak, special to

Polyak, Ilana. “Age and Risk Tolerance Key to Mastering Asset Allocation.” Web log post. CNBC. N.p., n.d. Web. 10 June 2015.

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For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.

10 Myths About Risk Tolerance and How to Accurately Measure It (


Risk tolerance is an individual’s general willingness to take risk in managing their financial affairs.

Risk tolerance reflects the balance between having too much risk and too little. An investor would not want to be overexposed to risk, thereby putting his or her financial well-being in danger. Nor would a person want to be underexposed to risk and miss out on financial opportunities. So risk tolerance is relevant to how people manage their financial affairs and, in particular, how well they sit with the riskiness of their investments.

There are many myths about risk tolerance, what it is, and how it can be measured and applied in the financial planning process. Risk tolerance is commonly confused with other risk attributes such as risk behavior or risk capacity. FinaMetrica has examined 10 common myths, tackles the assumptions behind them and explains the reality.


People’s risk tolerance is variable. When markets are rising, their risk tolerance is relatively high, but their tolerance falls when markets crash.


Risk tolerance is typically set by early adulthood and it decreases only slightly with age. Clients’ risk tolerance scores generally remain stable through the gyrations of the markets, though a major life event such as marriage or having children can change risk tolerance.

Notice from the chart below how little FinaMetrica risk tolerance scores changed through the market crash of 2008-2009. What changes as markets swing is more often investors’ risk behavior driven by their perceptions of risk, not their risk tolerance.

Our test scores risk tolerance on a 0 to 100 scale, mean 50 and standard deviation 10, and approximately 800,000 tests have been completed to date. We have periodically published monthly average risk tolerance scores, which are, in effect, new samples from the same population. Average monthly scores from 1999 to 2015 are shown below.

FinaMetrica Risk Tolerance Score chart

FinaMetrica’s white paper, On the Stability of Risk Tolerance, reports six studies across 10 years that confirm the stability of risk tolerance. In particular, two of the test/retest studies show risk tolerance as being stable across the market turmoil of 2007-2009.


A person’s appetite for risk is the same across all aspects of their life.


Just because a person likes to take physical risks, it doesn’t mean they like financial risks or other sorts of risks. One’s appetite for risk in one area of life doesn’t necessarily transfer to other areas. Jackson, Hourany and Vidmar (1992) propose, for instance, that risk tolerance has four levels: financial, physical, social and ethical. While there is some evidence of generalized risk taking, there is stronger evidence of consistency within, but not between the different facets.

So someone who, for example, never buys shares and sticks to cash may be an avid paraglider. Or a chronic gambler may tremble at the thought of mountain climbing or have their life insured.


Risk tolerance will determine asset allocation within an investor’s portfolio.


A risk tolerance assessment should tell the advisor the risk an individual is prepared to take in their financial affairs, but it is the risk profiling process that provides a proven methodology to ensure the suitability of investment advice.

Historically and even currently, many financial services companies and financial advisors have mistaken asset allocation calculator questionnaires for risk tolerance tests. The ambiguity of these tests has led to confusion regarding clients’ risk tolerance. This is because questions relating to risk capacity, time horizon and financial situation form part of a questionnaire that suggests that “we propose asset allocations based on your stated investment objectives and experience, time horizon, risk tolerance and financial situation.”

FinaMetrica’s white paper, Risk Profiling: Art and Science, explains the risk profiling process in detail and the need to scientifically and individually assess risk tolerance in that process.

Risk profiling involves finding the optimal level of investment risk for a particular person. The following factors need to be assessed when conducting a risk profile. Risk required is the risk associated with the return needed to achieve goals. Risk capacity is the level of financial risk the client can afford to take, and risk tolerance is the level of risk that the client wouldprefer to take. Risk profiling requires each of these characteristics to be assessed and compared to one another.

Often a mismatch exists between risk required, risk tolerance and risk capacity. Trade-offs then become necessary to solve these mismatches and give suitable financial advice to an individual.

The final step in the risk profiling process is to ensure that the client has realistic risk and return expectations so they can give their properly informed consent and implement an investment strategy on their behalf. The client must make their own decisions according to their own values and financial situation. So risk tolerance alone would never determine an asset allocation; understanding it is essential for both the investor and the advisor.


Risk tolerance testing is subjective and involves test providers applying their own judgements to measurements made.


While some risk tolerance tests are subjective, this is not the case if the test is psychometric. Over the past 50 years, the discipline of psychometrics has been developed by psychologists and statisticians to measure psychological traits such as risk tolerance and intelligence.

Psychometrics provides a well-established scientific discipline for assessing risk tolerance through questionnaires and the application of internationally accepted psychometric standards. Such tests, as long as they are reliable and valid, provide objective measures of risk tolerance. Valid means the questionnaire measures what it purports to and reliable means that it does so consistently with known accuracy.

Both versions of FinaMetrica risk tolerance tests exceed international psychometric standards with, respectively, reliabilities of 0.90 (25-question) and 0.84 (12-question) and 95% confidence levels of ±8 and ±10.

As mentioned, many risk tolerance tests in the market don’t just assess risk tolerance, they often include questions relating to other matters including risk perception and risk capacity. These tests are flawed as they are likely to give inaccurate readings of risk tolerance given that they ask about irrelevant factors. See Myth 6 for more details.


Financial advisors can accurately estimate their clients’ risk tolerance.


Independent studies show that advisors’ assessments of their clients’ risk tolerance are highly inaccurate. Strong evidence exists of gender stereotyping–advisors often overestimate the risk tolerance of male clients and underestimate the risk tolerance of female clients. Advisors in general also assign too much diagnostic value to other demographic variables such as income, wealth, cultural differences and marital status.

Adding in the fact that advisors are significantly more risk tolerant than their clients only increases the likelihood of their client’s over-exposure to risk. Studies show that advisors’ estimates of their clients’ risk tolerance correlate at about 0.4, which means that there are gross errors, two or more standard deviations, in one in six cases. Put another way, advisors would be more accurate if they made no attempt to assess clients’ risk tolerance and simply assumed everyone was average. This illustrates the need for objective, psychometric testing of risk tolerance.


Risk tolerance and risk capacity can be assessed together in the planning process.


Too often, advisors fail to separate out risk factors, that is, their client’s tolerance for risk, their risk capacity or capacity for loss and how much risk they need to achieve their goals (risk required). It is crucial to separate out these risk factors so that portfolio recommendations can properly align all three during the risk profiling process.

As the expert financial planning commentator Michael Kitces says in his blog, “Separating risk-tolerance from risk capacity—just because you can afford to take risk doesn’t mean you should,” each risk factor needs to be assessed and considered separately.

Risk capacity questions such as “How much could your investment go down by without it significantly affecting your financial well-being?” should be assessed separately from risk tolerance. Risk capacity, like risk required, is a financial trait, different from risk tolerance, which is a psychological trait. Different factors impact each and they therefore need to be assessed separately.

As Kitces writes: “The financial questions—which might be related to their need to tap the assets for income/withdrawals, the time horizon of the goal and the availability of other assets—speak to the person’s risk capacity,” not their risk tolerance.

“Once separating out the purely financial matters, true risk tolerance becomes purely focused on a client’s actual attitudes about risk. In other words, does the client actually have the mental inclination and desire to pursue a more favourable outcome at the risk of a less favourable result. Notably, these mental attitudes about risk have nothing to do with the ability to afford the risk—it’s simply about the desire to pursue actions or goals that entail risky trade-offs (or not).”


A related myth is that questions on the time horizon of the investment, the investor’s age and when the investor will retire are relevant to determine an investor’s risk tolerance.


There’s no doubt that having an understanding of your client’s investment knowledge and experience is an important aspect of knowing your client. While this understanding may influence the final advice given, investment knowledge and experience are separate factors to a person’s risk tolerance.

Questions referring to past investment behaviour, experience, financial knowledge or time horizon, for example, are commonly mistakenly included in risk tolerance tests. However, including such questions in a risk tolerance test would distort its measure. Although time horizon, for example, might be relevant to the measurement of risk capacity or risk required, it is not relevant to risk tolerance, which is an enduring psychological trait.


Risk tolerance is the primary, if not sole, driver of risk behavior.


Many different factors influence an investor’s behavior such as their risk tolerance, their financial goals and their perceptions of likely outcomes. Risk behavior can change significantly with market cycles.

When investment markets are booming, for example, people tend to underestimate the level of financial risk or perceive risk to be low. In contrast, in bottoming markets, risk perception is typically at its highest and some investors, out of fear of losses, sell their shares in favour of cash, as many investors did during the global financial crisis. What changes with the market cycle is a person’s perception of risk, which drives a change in behaviour, rather than their risk tolerance.

Many advisors think risk tolerance changes with major events such as a share market correction (Myth 1), but it doesn’t. Typically, it is an investor’s risk perception that changes, driving a change in their risk taking behaviour if share prices suddenly drop.


It’s okay to ask couples to complete a risk questionnaire jointly, rather than each doing their own.


When it comes to investing, women are generally less tolerant of financial risk than men. According to FinaMetrica data, in 67% of U.S. couples, men have a higher tolerance for financial risk than their female partners. Where there is a material difference in their risk tolerance levels, in 83% of cases it is the man who is the risk taker.

This is slightly higher than risk tolerance levels reported for male partners in the U.K., where, according to FinaMetrica data, in 64% of couples men have a higher tolerance for financial risk than their female partners. Where there is a material difference in their risk tolerance levels, in 87% of cases it is the man who is the risk taker.

In Australia, in 65% of Australian couples, men have a higher tolerance for financial risk than their female partners. Where there is a material difference in their risk tolerance levels, in 82% of cases it is the man who is the risk taker.

The main point is that financial advisors must not ignore the needs of the less risk-tolerant partner, who is in most instances the woman. Financial advisors often skip the process of separately assessing a couple’s risk tolerance and apply the man’s risk tolerance in determining a financial plan or superimpose their own preferences on the couple, which is a dangerous and unethical practice.


As long as I’m using a risk tolerance questionnaire, I’ll be okay. I’m doing my duty and meeting compliance.


Advisors are responsible for the processes and tools used in formulating advice. This responsibility cannot be delegated to a third party. Advisors must satisfy themselves that, at a minimum, any tool used is both fit for purpose and true to label.

The Financial Conduct Authority (in the U.K.), for example, makes advisors responsible for evaluating the tools that they use. Advisors must therefore conduct due diligence on any test they use to endure that it is accurate and reliable. FinaMetrica has developed a detailed due diligence questionnaire which can help advisors conduct due diligence process and choose a risk tolerance test.

Resnik, Paul. “10 Myths About Risk Tolerance and How to Accurately Measure It.” Web log post. Thinkadvisor. N.p., n.d. Web. 9 June 2015.

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For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.

Don’t ignore your 401(k) (

“Set it and forget it” works for some things — like stew in a slow cooker — but that philosophy that can really mess up a 401(k) retirement plan.

That doesn’t stop a lot of people from adopting that approach and sticking to it, sometimes for their whole employment tenure. According to a recent study by human resources consultancy Aon Hewitt, in 2014, only 19 percent of employees with a 401(k) — who aren’t invested in pre-mixed or target-date funds — bothered to rebalance their portfolios.


“We don’t advocate fretting about it weekly, but you ought to pay attention at least a couple of times a year,” says Winfield Evens, director of investment strategy and retirement research.

  • Check out your options. If your retirement fund is in a pre-mixed or target-date fund, Evens suggests that you look at how your money is invested and the returns it is getting compared to similar funds. If your company offers more than one target-date or pre-mixed option, consider those outcomes as well. If your money is invested in more than one target-date fund within your 401(k), you might consider combining in one or the other. All things being equal, the one with lower expenses is probably a better choice.
  • Get help. If you are invested in other kinds of funds or individual stocks and bonds, you may want to get some advice about rebalancing, especially if you are protecting and growing a sizable nest egg. Rebalancing generally means selling some of the investments that have done well and reinvesting the money in things that have underperformed and are poised to do better. It can help to get a second opinion before you begin to make moves.
  • Increase your savings rate. When you get a raise or annual bonus, that’s the time to raise the percentage you are putting aside. “People look for a magic pill. The magic pill here is to save more,” Evens says.
  • Ask questions. Keeping a close eye on your 401(k) also will make you aware of the options offered by your plan sponsor. Are you paying fees at institutional rates rather than retail rates? (The latter are generally higher rates that individual investors pay.) If so, are there lower-cost options available? If you would like to see changes — different investment options, funds with lower costs — start by talking to someone in human resources. Evens says more people ought to speak up when they have questions and concerns. “Don’t launch a battle,” he advises. “Just ask your questions.”

Phipps, Jennie. “Don’t Ignore Your 401(k).” Web log post. CNBC. N.p., n.d. Web. 8 June 2015.

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For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.