Your financial advisor is giving you bad Advice

Even if it is well-intentioned, your advisor’s one-size-fits-all approach is not going to work for You

I have gotten bad investment advice before; I suspect you have gotten the same advice. Specifically, it is the concept that you should shift your investment strategy to a more conservative approach when you begin to approach “retirement age”.

I have heard it from many sources, but probably the most concerning version came from what many might consider a definitive “expert” in advice for people hoping/expecting to retire at some point.

A few years ago, while I was still working actively in my public service job, I took advantage of my employer’s invitation to meet with a financial advisor employed by the investment company that sponsored my city’s 457 plan (like a 401k, but for state and local government entities).

This is a large plan that oversees billions of dollars of public sector employees’ money across proprietary funds managed and sold by the organization.

The representative from the company, a well-dressed twenty-something, looked at my account total and the particular funds in which I was invested. He then proceeded to advise me to consider moving into bond-based funds to limit my risk exposure to the market.

Seems like good advice, right? It’s not. Here is why:

This is cookie-cutter advice, doled out to everyone without regard to their financial goals and plan.

The most dangerous part of this advice is that the recipient often interprets this to mean that on day-one of retirement their entire nest egg should be firmly entrenched in cash accounts and bonds.

The specific advice this young gentleman gave me was to begin shifting to bond accounts that day with a goal to have all my savings in bond-heavy mutual funds prior to leaving employment.

This is fantastic advice for anyone planning on spending their entire savings in the first year or so of retirement. If that is you, then definitely follow that plan.

For anyone that is considering stretching their savings out over many decades, a different approach is probably best.

Personally, I am expecting to stretch my savings for 20+ years, and not spend it right away. Therefore, my plan is to strategically and systematically shift my savings into increasingly conservative investment vehicles over time.

Additionally, the definition of “retirement” is different for everyone and may not be the same thing as the date when you need/want to tap into your retirement savings.

The concept of “semi-retirement” seems to be gaining popularity, and at least in my case the ability to do some freelance work will allow me to leave my retirement savings untouched for the near term, and maybe for quite a while.

The point is, that if I had taken the financial advisor’s advice to transition my accounts into bond-heavy mutual funds, I would be financially worse off today.

The ten-year average returns on the accounts where I had my funds invested demonstrated a 10.5% return, while the fund that the advisor recommended had a ten-year average return of only 8%.

Both funds performed well, but if I had heeded his advice in the moment, I would have missed out on over $7000.00 worth growth in the four years since I ignored what he said.

That is why, when you are considering where to invest your retirement money, decades matter much more than years. Yes, if you are going to spend your money in a short term, then years matter.

If you are limiting your withdrawals across many years, then decades matter more.

The only real take home message here is that generic investment advice might be great for someone…

But it is likely not very good advice for you.

Every person’s financial situation is different, especially when it comes to retirement (or “retirement”).

Don’t take generically good advice and assume it applies to your unique situation.

While it certainly might be worth your while to talk to a financial advisor, don’t do it before you have sat down for a minute and applied some common sense to what you are trying to accomplish.

Have a good idea of your plan before you see an advisor. If they don’t ask you questions about your plans and what retirement looks like for you specifically, make sure you tell them what your projected financial needs are, and what your goals are for your time after your “9–5” job ends.

It will likely look quite a bit different for you than for others. The advice you receive from a financial advisor should be your advice, and not something intended for everyone.

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Timothy Key spent over 26 years in the fire service as a firefighter/paramedic and various fire chief management roles. Now moving forward to writing and consulting. For more articles like this, join the mail list.