People often believe that every firm offers personalized financial planning and investment management tailored to the individual.
But actually that is wrong. Firms [almost] all follow the same 1950’s investment process that leads to an approach of underperformance, complication and undue stress on the client all in the name of mass-produced plans that cater to the advisor and not the client.
There are three major flaws we see across the entire financial advising / money management industry and we will show you how we can fix the flawed approach.
Flaw #1—Risk Scores
The Outdated Metric Hurting Retirements
The reliance on risk scores as a singular determinant of retirement strategy fails to account for the multifaceted nature of an individual's financial situation. These reductive tools oversimplify complex variables, leading to suboptimal decision-making. This reductionist approach risks creating misaligned investment strategies that fail to adapt to evolving market conditions or personal circumstances. A more nuanced, data-driven strategy is necessary to optimize investment outcomes and protect long-term financial security in retirement.
Imagine walking onto a plane and being confronted by a handful of jarring questions by the pilot and co-pilot.
You were running twenty minutes late and you’ve got your luggage in hand.. Your TSA Pre didn’t help and now full of stress the questions start.
How much turbulence do you think you can handle during this flight? If the plane loses 10,000 feet of altitude would that affect your flight? If oxygen masks deployed but you ended up not needing them, how would that affect your flight? If this flight didn’t make it to your destination but you were still safe, would that be okay?
If a pilot or a captain or a surgeon or a mechanic, or basically any professional asked these types of questions what would you be thinking? Would you be thinking, “Yeah, this line of questioning makes sense and I feel better about this pilot and my fight? Or might you be concerned?
You’d be concerned. And yet people not only tolerate these questions but are told they are important to the outcome of the most important part of their lives. Their last 25 to 30 years. No industry asks “risk questions” like this and yet “every” advisor asks them.
What do your feelings about turbulence or altitude loss have to do with trying to get to Florida? Isn’t the pilot supposed to be determining if passengers should even be flying? Isn’t it their job to safely get us there? And yet, millions of people are asked similar questions by their financial advisors each year.
Risk Scores are flawed.
Risk surveys are the norm when it comes to investment advice. They vary in content and length, but their purpose is the same. Reduce an investor’s complex life into a single number. Inputs include age, wealth, income, investment horizon, and investor behavior. The resulting measure is meant to be reductive so an investor's life and retirement can be handed around to different companies and departments to then be put into a “one size fits all” existing portfolio. Which incidentally has nothing to do with the stock market being in a bull or bear market. This is a problem.
Does reducing an investor to a number really help them? Or is it really helping the advisor? Does the stock market really care how an investor answered a handful of questions on a Tuesday after missing lunch and dragging their spouse to that same meeting? Would this survey help the investor achieve their goals? And should advisors use them? We don’t think so.
Risk Scores are counterproductive because their output is used to optimize for the wrong variable. Namely the investors mood and feelings (at that moment in time), both of which are fleeting.
Advisors know all clients want the same thing. They want to protect their wealth during the scary bear markets and they want to safely grow it during the bull markets. They want to know they will have enough income to retire and stay retired. In other words they want to know they’ll be okay.
People often believe a risk score ensures a set market outcome that aligns with their answers, akin to ordering a meal with 800 calories. But actually that’s not true. Risk scores are a tool born in the early 1950’s as a result of banks collapsing in the 1930’s. Risk scores are a way to help advisory firms grow faster.
The answers are a snapshot based on your mood at that moment. And yet, that investor's approach will stay fixed for years until one of two things happen, (1) there is a major life change (death, retirement, birth) or (2) The client challenges their advisor enough to change the score.
It’s not your job to understand investment risk any more than it is to know if it's okay to fly to Florida today with falling barometric pressure.
Risk scores dangerously connect the stock market's movements with your income needs. That is flawed. The growth of money in the stock market during bull and bear phase AND consistent income to support one's lifestyle are two very important and completely separate retirement conversations. Combining them into one, which advisors do via the Risk Score, is akin to looking through a telescope the wrong way. The focus is backwards.
Risk scores don’t know you. Your advisor is supposed to. Ripping that job away from an advisor for the sake of scaling their massive firm a little faster feels bad and creates manufactured volatility in your life.
The Fearless Wealth Solution
We set out to build the future of retirement advice. Our three part approach:
(1) Grow portfolios during the stable long term bull markets and protect portfolios during the shorter but painful bear markets.
(2) Make sure clients have consistent monthly income that protects and supports retirement lifestyle regardless of the stock market bull/bear phase.
(3) Have a trusted advisor in your corner to help manage overall wealth and not just your market portfolio. All without jargon and complicated outdated approaches.
When you are ready to add 10 good years, we can help you have a better retirement by starting here.
Flaw #2—Model Portfolios
Why Advisors Tell You to Wear the Same Outfit All Year, Every Year Regardless of Weather
Financial Advisors often treat retirement portfolios like a one-size-fits-all solution? Model portfolios ignore critical market changes, leaving people’s investments vulnerable in bear markets. Our service customizes your portfolio for market seasons—maximizing growth in bull markets while protecting your wealth in bear markets. Don’t let outdated strategies dictate your future. Invest with a service designed for real-life conditions.
Chicago is considered the Windy City because of its politics but one could easily think it's because of its weather. If you have lived in the Midwest for any amount of time you know winters are bitterly cold and summers are sweltering hot.
Summers will find you wearing a light cotton t-shirt and shorts for months straight, while winters will find you wearing layers of the best insulating clothes head to toe. And yet, in the world of Advisors, they want you to wear one outfit year around regardless of weather.
You won’t die but you will freeze in the winter and overheat in the summer. The Advisors outfit doesn’t fit any season.
Why Do They Do This?
Because advisors want to put client’s retirement money into what is called a Model Portfolio.
A model portfolio is a cookie cutter approach to financial advising and money management that caters to the advisor’s business model and completely ignores that there are winters to the stock market (bear markets) and there are summers to the stock market (bull markets).
Investor classifications like ‘conservative, moderate, aggressive’ which drive model portfolios are flawed. Why?
They ignore market conditions like bull or bear markets
They follow a set of arbitrary trading rules like rebalance every six or twelve months.
They often invest 80% of their client’s money in under performing investments.
This is done, all in the name of aligning the client’s portfolio to their other model portfolios. Model Portfolios are asking you to wear the same outfit year around even though you live in Chicago.
The end result?
Investors are left with a mass-produced basket of investments that make assumptions that might not be best for retirement. For example:
This approach assumes the advisor can pick the best stocks/ETFs/Funds over time, even though every study has shown that 97% of money managers underperform the S&P500 with dividends reinvested over rolling five year periods.
This approach assumes clients' money will be better served in Model Portfolios, even though history has shown even the 60% stock / 40% bond portfolio has suffered -40% losses +/- during the Dot Com Crash and the Global Financial Crises.
This approach assumes “riding it out” is what’s best for retirement clients It’s not.
What's wrong with these assumptions?
Assumption #1 When an advisor assumes they can beat a very hard to beat index they are unknowingly loading on risk and what we call manufactured underperformance, both of which are detrimental to retirement accounts. It’s not impossible to beat the index over short time periods but over longer ones, the investor better hope their advisor has lucky rabbit's foot.
Assumption #2 assumes the conventional idea that a single number, their risk number. The same number that was assigned to them because of one meeting during one morning of their life is what’s best for their entire retirement.
Assumption #3 suffers from the idea that a client’s money should always be fully allocated to the market at all times. And at no point is there ever a time when stepping aside from the market (read: bear markets) would be better for their retirement income.
We think arbitrary model portfolios do not serve retirees best. These traditional investment approaches are obsolete and fail to deliver a retirement with stability and steady income, so we do not use them.
The Fearless Wealth Solution
We set out to build the future of retirement advice. Our three part approach:
Grow portfolios during the stable long term bull markets and protect portfolios during the shorter but painful bear markets.
Make sure clients have consistent monthly income that protects and supports retirement lifestyle regardless of the stock market bull/bear phase.
Have a trusted advisor in your corner to help manage overall wealth and not just your market portfolio. All without jargon and complicated outdated approaches.
When you are ready to add 10 good years, we can help you have a better retirement by starting here.
Flaw #3—Loss Management
Riding out a bear market is flawed thinking
The conventional approach of passively 'riding out' bear markets in retirement portfolios presents significant risk, particularly given the extended recovery periods often required post-crash. Retirees want to mitigate downside exposure during bear markets, while optimizing growth during bull markets. A model that can empirically and rigorously approach the markets is more likely to be better than the conventional static, calendar-based rebalancing techniques, which might leave retirees with less choices.
Imagine you’re driving up a mountain, aiming to reach the top for the best view. The drive takes you higher and closer to where you want to be. You are a safe driver, the roads are clear but still you are glad there are guardrails, not because you plan to behave badly, but because if something unexpected happens, they prevent you from falling or scaring the heck out of yourself.
Stepping aside from the stock market for short but important periods of time during a bear market are like those guardrails for retirees—we all know the market comes back. When the stock market fell in 2000, the Dot Com Crash, the market took 12 years to come back.
Imagine being retired. No active income. And waiting twelve years for your account to get back to break even. That doesn't even include the effect of inflation on your money. Saying the market always comes back is true but not helpful.
When someone stops their active income and they are in their 60’s, 70s or 80s waiting five, ten or even twelve years is unacceptable. But that is exactly what most advisors will tell you to do. We think that is flawed thinking.
Growing stock market wealth during retirement is important because life expectancy is longer than ever, and medical costs can rise unexpectedly. But just as you need your investments to grow, protecting what you’ve built is even more critical. You don’t have the luxury of a 30-year career ahead to recover from a major financial hit.
Retirees can’t afford to ride out a 50% market crash the way a 30-year-old might. A drop like that could mean permanently damaging their ability to fund the next 20-30 years of life.
For the same reason you wouldn’t drive through a tornado or hurricane, you wouldn’t want to drive through a bear market. And the idea that if you just drive slower at all times, through good or bad weather (read: the classic 60% stock / 40% bond balanced portfolio) is flawed. And yet, that is what most advisors tell their retired clients to do. Just ride it out.
We manage the downside risk of bear markets by implementing what is called “Market-Based Rebalancing.”
Rebalancing is a strategic process where an investor adjusts the allocation of assets in a portfolio balance between different asset classes, such as stocks, bonds, and cash. The goal is to support long-term growth by managing downside.
But here’s the problem with how almost all advisors rebalance. They rebalance arbitrarily based on the calendar and not based on market direction. We think this is a huge flaw to retirement management. Calendar rebalancing leads to selling winners during long term bull markets.
You are not safer. You don’t go on better vacations, you just have less wealth by selling some of your winners each year. Retirees need their winners to grow during bull markets. That is part of what keeps their income safe. And then advisors tell you to stay in during bear markets, destroying wealth and creating retirement anxiety.
Market-Based Rebalancing is different, it keeps clients' money in the market during those long stable bull markets when stocks are safe, stable and trending higher. And rebalances their money out of the stock market when bear markets can drop the stock market -30% to -80%.
The Fearless Wealth Solution
We set out to build the future of retirement advice. Our three part approach:
(1) Grow portfolios during the stable long term bull markets and protect portfolios during the shorter but painful bear markets.
(2) Make sure clients have consistent monthly income that protects and supports retirement lifestyle regardless of the stock market bull/bear phase.
(3) Have a trusted advisor in your corner to help manage overall wealth and not just your market portfolio. All without jargon and complicated outdated approaches.
When you are ready to add 10 good years, we can help you have a better retirement by starting here.