hands, old age, cash, money, bills, savingsGetty Images/iStockphoto
Chris Turnbull is a Portfolio Manager at the Index House, a division of Polaris Financial Inc. and author of Your Portfolio is Broken: Who's to Blame and How to Fix It!
As people near retirement, they tend to look forward to travelling, golfing or volunteering their time. But occasionally, I hear people say they plan to "spend more time on my portfolio," and I cringe.
Is the family portfolio a hobby to while away the free retirement hours? What work are you planning? In the traditional non-discretionary-predictive approach to investing, employed by most investors, the client authorizes each buy or sell, which is then implemented by an adviser. Presumably, each investment involves research, discussion and a verdict about how to proceed. In reality, these decisions are often superficial and based on a few sound bites. If the adviser tells you what you like to hear, then you'll probably buy it. To the point, what value are you adding and how will this change in retirement?
Managing the family portfolio one investment at a time based on a few sound bites may be how you always did things, but does it fit your retirement lifestyle? After all, cars used to start with hand cranks until someone found a better way. When you are in the garden, on the golf course, travelling on a dream vacation or hosting friends or family, will you have the time to make these decisions Or will you simply rubber stamp your adviser's recommendation?
Modern alternatives include discretionary portfolio management and index investing. Both dispense with the nonsensical conversations that occur between advisers and clients about "what looks good in the market right now" or "our analyst's top picks" or "where the markets are headed." Discretionary management offers a comprehensive family portfolio strategy which is managed for you. Discretionary managers provide quarterly reports showing holdings, the asset mix, fees and a single consolidated rate of return after fees have been deducted - giving each investor control over his or her retirement savings. Choosing index funds over stocks reduces risk and relieves you of the obligation to understand the intricacies of individual companies and the industries they compete in. Not just at purchase, but continually through time.
Scattered investment accounts at several financial institutions are also problematic. Do you want to spend your retirement waiting for statements, tracking security cost bases and consolidating multiple sets of year-end tax documents? Do you know that when you sell shares of a security held in two locations, that you must use the average cost of all shares to determine your gain or loss on the sale? Is this your idea of a dream retirement? If so, what value do you add by simply dealing with unnecessary complexity? What if you pass away before your spouse? Where does your retirement hobby leave them?
Pre- or post-retirement, treat your portfolio like a business, not a hobby. Consolidating your accounts at a single firm, choosing discretionary management and developing a family investment strategy with quarterly reporting will free up time to spend on truly meaningful and enjoyable retirement activities.