Friday, January 16, 2009

What To Do When the Financial Experts Don’t Know Anything

It seems that almost all the financial ideologies we have relied upon in recent years have turned out to be houses of cards.

It’s time to start picking up the financial mess that has been strewn across both Wall Street and Main Street. What is a consumer to do to ensure that their retirement savings will be their when they need them? Who and what retirement products can be relied upon? And, what assertions can a responsible financial advisor make to a consumer and know that he is truly standing on firm ground?

Over the next four posts, I’m going to talk about the retirement planning beliefs that have been shattered by a failing economy. With each point, I will also revisit a time-tested financial planning truth we can expect to be championed again. You know – those that were too conservative – too stodgy. Not surprisingly they are suddenly seen as wise advice again.

Failed Belief No. 1: Risk can be controlled.
No. 1 Merrill Lynch sold itself in hardship to Bank of America, and No. 4 Lehman Brothers and No. 6 Bear Stearns failed and went out of business. If these firms, each employing tens of thousands of the best financial minds in the business, could not control their risk enough to stay in business, how can the average future retiree expect to do so? And why should any retiree rely upon similar firms, their strategies, or their advice?

Time-Tested Truth No. 1: Nothing is a guarantee unless it is a guarantee.
When risk cannot be reliably controlled, and when wise management cannot achieve consistently excellent returns, guarantees matter. The good news is that whether you are offering annuities (index annuities, multi-year guaranteed annuities, etc.), cash value life insurance, or any other type of insurance product, there usually is an excellent selection of products that provide long-term guarantees and that are offered by solid, strong insurance companies. During the financial boom times, current and future retirees sometimes lose their focus on guarantees. But today, consumers and financial advisors can easily see the value of strong, long-term guarantees.

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Our next post will focus on whether smart money management can achieve consistently excellent returns.

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