Balancing a retirement and college savings can be overwhelming. Here are 6 tips that will help ease the long-term planning.
If you’re saving for retirement with a robo-adviser, it’s quite possible that you just experienced stock market volatility for the first time ever earlier this year.
With hope, you stayed the course with your investments and didn’t panic sell. But what about the next time the stock market corrects or, worse, turns bearish. What then? Experts offered the following advice.
Risk and returns
Learn the risks associated with investing and make sure you have an appropriate amount of exposure to those risks based on your age, goals, and tolerance, says Andrew Sivertsen, a financial planner with The Planning Center.
You can learn about the risks associated with investing by enrolling in Financial Planning for Young Adults, a free online course created by the University of Illinois at Urbana-Champaign in partnership with the Certified Financial Planner Board of Standards.
You can also consult with a certified financial planner or a qualified and trustworthy investment adviser. Resources include https://www.napfa.org/find-an-advisor, www.letsmakeaplan.org/choose-a-cfp-professional/find-a-cfp-professional, www.plannersearch.org/.
Assuming you’re in an appropriate portfolio, put on your noise-cancelling head phones and ignore the media circus. “Behavioral finance has taught us that we are not hardwired to be good investors in that our emotions typically trigger us to do the opposite of what is best for us,” says Sivertsen.
Manage your expectations
Robos are no better than human advisers at avoiding market volatility and losses. The big difference is that a human adviser will hold your hand during times of market volatility and, likely, stop you from acting rashly while robo-advisers are unlikely to provide the same level of personalized service.
“There are certain implied expectations in marketing and PR about the various robo options,” says Michael Branham, another a financial planner with The Planning Center. “Generally speaking, the robo world does a poor job of handling the emotional side of any financial planning relationship. While there are cost advantages in some cases, you get what you pay for.”
Ultimately, says Sivertsen, having a third party and trusted human that can help talk us from the amygdala response to the rational side of the brain has been shown to be the best help during volatile markets.
Robo doesn’t mean necessarily personal advice
According to Branham, the phrase robo-“adviser” is bit misleading. “In most cases you’re investing via algorithm, not based on an approach where contact with an adviser takes your full financial picture, goals, and objectives into account,” he says. “Investing is part financial or practical, and part emotional. It’s difficult for an algorithm or website to effectively account for both, regardless of the inputs on the front end.”
Sometimes, he says, real conversations with a real human who is building a broader, comprehensive profile of you — as a human being — is the only way to really capture what’s really important.
Still have volatility
Human advisers, says Branham, typically spend significant time on the front-end setting and communicating realistic expectations of market volatility and its effect on one’s path towards your goals, both in the short- and long-term. “If you’re not comfortable with volatility and uncertainty you should really consider whether an investment approach that doesn’t give you an outlet to communicate your fears and concerns in a manner that would allow those to be considered in developing an investment policy is appropriate,” he says.
As life occurs, and your circumstances change, Branham says it is important to have an outlet to discuss those changes and how they might or might not apply to your investment policy. “Doing so with a human being that has context and history with you allows maximum effectiveness in those conversations,” he says. “That’s more difficult with an investment algorithm.”
Investments are not a financial plan
There’s more to your long-term financial plan than your investment portfolio, says Branham. “The coordination of those many facets can be complex, and hard to replicate in a ‘robo’ sense,” he says. What’s more, it’s likely as the size of your portfolio grows and your financial life becomes more complicated — marriage, the purchase of a home, college funding, and the like — your need for personalized advice will grow.
Advisers will use robos
According to Siversten, robo-advisers won’t replace the human adviser, but rather transform the industry. Advisers will embrace robo technology for efficiency. “They no longer need to be spending time with asset allocation and rebalancing strategies, but rather focus on helping clients with real financial planning and setting/achieving their goals,” he says. “So, people should look for a financial adviser with the certified financial planner designation whose value proposition focuses more on financial planning and less on investment management.”
Robert Powell contributes regularly to USA TODAY, TheStreet, and The Wall Street Journal. Got questions about money? Email Bob at firstname.lastname@example.org.
The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.
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