Three Advisors React To A Guy Who Argues Saving For Retirement Is “One Big Stupid Opportunity Cost”

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I invite you to take a look at my Facebook feed for a minute.

My friend posted a link to this article. It uses a story and graph to illustrate the effect of compound interest and suggests that 25-year-olds start saving for retirement now. Pretty basic stuff. And indisputably true.

Good message. Impactful chart. I clicked “Like”.

Almost simultaneously, someone posted a comment.

Facebook Comments re- Retirement i

Hold the phone.

I understand some people use the Facebook comment section to make extreme remarks… often looking to attract attention, feel important, or get a rise out of others, but this struck a nerve.

First, he used quotations around “financial advisors” as if it’s a bogus term, detailing, “what is best for you is not what’s best for them”.

I really started to cringe.

To be fair, I know I have an above-average appreciation for the financial services industry. I started college as a Finance major, worked in the office of two financial advisors for a couple years (hey, Gary and Anthony!), and after a few other ventures, became a dedicated member of the team – helping advisors effectively and efficiently engage with clients. Even still, I knew my biases weren’t the only thing driving me to react. “G” was striking a deeper nerve. (Notice this polite use of quotations, G?)

Most of all, I was stumped by his passionate protest against the basic message of the piece. He was challenging the idea that saving for retirement ASAP is a good plan., seeing it “as one big stupid opportunity cost” due to loss of liquidity.

I had to hear his reasoning. So I prompted him for it… and he replied……..

Facebook Comments re- Retirement ii

It seems “G” is thinking about savings and cash as an either/or situation. ‘I can’t save for 65, because I need cash on hand now.’ I’d say you need both, G, not either/or.

I’m not going to get too hung up on his reasoning – there’s clearly a bigger issue going on than what we can tackle in a single blog post – but it provides us all with a moment to stop and remember two fundamental things:

Basic Reminder for “G”: Facts are not the same as personal opinions.
Applied Lesson for Advisors: Don’t assume your clients know basic facts or understand basic concepts. It’s your job to lay a foundation for their healthy financial life, and education is where that starts.

I shared this Facebook story with a few advisor friends to hear their reactions, compare them to my own, and ask how they would help “G” or people like him. With permission, I shared a few of their approaches below.

What Would You Do?

–> We invite you to scroll to the comments section below to weigh in!

Brad Raines says:

The few things “G” is missing… Raines-Headshot

1. The moral of the story isn’t investment returns, it’s saving early and often according to your own personal financial situation versus getting behind by spending more than you earn which leads to beginning the “serious savings” in your 50’s.

2. The average saver/investor has the time to spend learning how to manage their own investments, and they are willing to be accountable, unemotional, and consistent in that area.

3. Investors don’t pay advisors for access to investments, especially index funds.  Maybe back in the day they did, but these days almost every investment out there is accessible to a DIY investor through any number of low-cost platforms (Scottrade, Schwab, E-Trade..etc).  Investors pay advisors to help them allocate their investments and manage them throughout throughout each market cycle.  Yes anyone can do this themselves, but most don’t because they aren’t willing to commit the time and cannot remain unemotional with their decisions.

4. As far as liquidity goes, other than unlikely emergencies I’m not sure why “G” needs immediate access to his money unless he can accurately predict the next market crash or has an inside track on some incredible investment opportunities.

5. Everyone knows that if you’re broke at 27, it’s probably because you’re eating too much fast food.  It’s usually much cheaper to eat at home.  😉

Mary Beth Storjohann says: mary_beth_headshot

I all comes back to education.

In my own experiences as an advisor, I’ve noticed that education is needed for even the most basic concepts. I have clients (even in their early-40’s) who didn’t quite know what a “bond” was when I asked them, so we walked through it. To this point, I generally avoid using industry slang or terminology on a regular basis with my clients because I want to make sure they understand the context of our discussions.

G’s comment is also another reminder that education is needed around what this industry is here for – What we’re really doing, how we provide value, what different strategies and tactics can do to help different people, etc. It’s all rooted in properly educating people about the basics.

If I were to speak with “G”, I’d start by asking if he understands what these different terms mean, what he believes his emergency fund needs really are, and if he understands the ways Financial Advisors help people.  Still, something tells me he may not be a good “client fit” for me.  🙂

Maneesh Shanbhag says: maneesh_headshot

There are 3 major issues with G’s comments that I would try to convey to him:

1. Saving for retirement and lack of liquidity do not have to go hand in hand.

“G” makes the point about not having access to capital that is being put away for retirement.  In that statement he is making the assumption that the only way to save for retirement is through 401k’s and IRA’s.  While these vehicles help and produce an incentive for those who might otherwise have trouble saving and force a discipline on those that might otherwise be tempted to withdraw funds prematurely, this is not the only solution.  One can always forgo these options and simply save without the tax shelters offered by IRA’s and 401k’s, in which case as long as he is investing his money tax efficiently and saving enough and consistently, he too will reach his retirement goals.

But “G” later makes the point about not wanting to accept the returns of index mutual funds.  Many options for earning significantly more, involve significantly more risk (including no liquidity), like investing in private businesses.  He seems to be contradicting himself with his stated desire for higher returns using non-public market assets.

2. Active management is a zero sum game.

In G’s stated desire for higher returns, he is implying he can beat an index fund.  Maybe he does have exceptional skill, but decades of research and more importantly decades of data on professional managers show that only a tiny handful beat markets over time and it’s even harder to identify those with exceptional skill ahead of time.  In the end, for every buyer in markets there is a seller.  Only one side of the trade can be right.  Active trading is a zero sum game.  And after fees and taxes it is a big negative sum game.

Said another way, index mutual funds (or ETF’s) are the best way for 99% of investors to grow and preserve their wealth while taking the least amount of risk (broadly defined).

3. Investment advisor fee grab.

And last but not least, “G” seems to take a dig at the advisor community for promoting higher savings as a way for advisors to take higher fees.  While I can see there is a potential for conflict of interest in this regard, we all know the stats that this country is in the midst of a savings crisis.  And as the chart you posted shows, this crisis only gets worse the longer we wait to save.  If “G” doesn’t want or need an advisor, that’s fine, I don’t believe that is the point of the chart.  The point is simply to say to save regularly and start early.  There’s always do-it-yourself at cost investing through Vanguard if he wants to minimizes fees and not pay an advisor.

I think the attached chart summarizes a lot of this.  Fees and taxes will drown out most of your returns over time if you don’t think about them over longer term time periods. People like “G” can easily estimate the impact of taxes over time on their portfolio and make an informed trade off as to whether they would prefer to save in a tax deferred vehicle or not.

In the end, we often come across investors who have criticisms for various approaches but most such criticisms are grounded in emotion, and not logic or facts.  Anyone can do a little back of the envelope math to quantify the benefits of deferring taxes for 20, 30 or 40 years.  Or estimate the impact of a low fee or higher fee advisor over similarly long periods of time.  We try to first show the facts and then have the discussion.


Use the comments section below to join the conversation.

Carolyn is Blueleaf’s in-house marketing guru. She writes on The Blueleaf Blog to make advisors’ lives easier, offering practice management and client engagement tips where and when they’re useful. Outside of the Blueleaf offices, she can be found running a 10k or cooking her famous chili. Chat LIVE with Carolyn on Twitter @BlueleafAdvisor!
  • Sha of Communism November 5, 2017, 7:26 pm

    I do not understand why, as an investor, I must pay up-front commission, trailing commission, or deferred sales charge to invest my own money. I do not understand why I cannot access my money any time I want and on any terms I want.

    For these reasons I boycott mutual funds and seg funds. 80% of the active mutual fund managers fail to outperform their index (source: SPIVA® Canada Scorecard) while charging you a high fee and locking up your hard-earned money.

    Large passive ETFs charge me a fraction of the fees and I can buy or sell at any time I want and on any terms I want. To hell with the financial advisors, especially the commission-based ones. I print out pension fund and university endowment annual reports at home, replicate their allocation, and that’s how I and anyone should invest. I hope all these commission-based financial advisors (mutual fund salespeople really) go unemployed.