The Independent Financial Group
IFG logo WhiteText 

 

 

 

James Lorenzen, CFP®, AIF®

May 23, 2012 

Maze-Green-DollarSignCase Study  Provides Lessons for Us All 

  

 

A New York Times article from last week is well worth reading.   Some of you may have seen my Twitter link on this already.

 

In it you'll find the story of Patricia Cotton, age 72.  It will especially have some meaning for anyone you may have met who ever said, "As long as I'm making money, I don't care because my broker is doing so well for me!"

 

Mistake #1

 

Patricia never thought, or cared about, excess risk.  Why should she?  It was a bull market and he was making money for her!   Then the melt-down came.  Here IRA lost roughly half it's value.

 

Mistake #2

 

She hit the panic button and sold out.  Instead of moving her account to a planner-advisor, she simply exited.  This meant she wasn't invested for the inevitable market recovery.   It didn't help that she compounded the mistake by exiting her IRA altogether, which ended-up costing her additional expenses, taxes, and penalties which ended-up taking about half of what was left.

 

Mistake #3

 

Let's hope there won't be any more.  You can tell from reading about Ms. Cotton she's quite a lady with a wonderful ethic who deserved far better than she got from her broker. 

 

 

But, there is a lesson:  Excess returns come from excess risk.  Mario Andretti could take a Mazzarati around hair-pin turns at breakneck speeds; but, people with lower risk profiles shouldn't let the driver they hire take their family car around the same turn at 100 m.p.h.  It's a sure recipe for driving off the road.

 

The same Times story contains some other case histories worth reading as well.

 

Jim

-----

Jim Lorenzen, CFP, AIF 

Jim Lorenzen is a Certified Financial Planner® and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG provides investment and fiduciary consulting to retirement plan sponsors, and retirement and wealth management services for individual investors.

Additional IFG Links:

 

 

IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  IFG does not provide legal or tax advice and nothing contained herein should be construed as  securities  or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader.  The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.  The Independent Financial Group does not sell financial products or securities and nothing contained herein is an offer or recommendation to purchase any security or the services of any person or organization.