Baby Boomers Should Filter Out Much of the Fund Management Advice

As I read more and more about the poor returns from the funds I also see more and more financial gurus rationalizing the losses on the funds and advising intelligent investors to hold on. Baby Boomers need to filter out some of these messages as they don’t apply to you.

It runs something like this. Investors have had 4 years of great returns so one bad year should not result in you taking you money out of the funds. (If you have lost much more than 10% on your risk-based assets like equity and property funds this is actually good advice I think – You’re stuck with your investments for now).

It implies that since the market has gone up in the long term it will soon recover and continue on in its merry way. They have no way of knowing this. Baby Boomers cannot rely on these sorts of statements when their retirement relies on the money they have saved in their nest egg.

It also implies that all fund contributors are investors. Baby Boomers are not investors any more once they have retired and are living off their nest egg. They are capital preservers first and foremost. If their funds make more than is needed to preserve capital that is a bonus. Chasing high returns is risky. The important thing is to avoid large losses because they will be too hard to recover from when taking a pension.

One comment I read in the newspaper the other day is “Our key message to members is to focus on the long term”. Well it doesn’t apply to Baby Boomers in their first year of retirement if they are starting right now. Baby Boomers are starting their long term in retirement and as such are in the short term of the long term if you get my meaning.

If you suffer significant losses to your nest egg in the short term in retirement it is likely it will not survive in the long term in retirement. This must be understood and internalised by all Baby Boomers for their own survival.

Another bit of misinformation is that if you invest in a “properly” diversified portfolio then you should be fine for the long term. This is a get-out of jail card for the fund managers when the phrase “the long term” is added. In this case though it is likely to become true in the long term – which is undefined. Is it 10, 20 30 or more years? Will you be around to benefit from it too?

More importantly, a “properly” diversified fund is incorrectly defined by the mutual fund industry as having them invest your money in the main in their equity funds, property funds, fixed interest funds and cash. As I have shown in the post “Are Your Retirement Fund Returns for 2008 as bad as this“, this is not proper diversification. This year all asset classes are down it seems.

Self-managed funds apparently faired better this year because they invested in different asset classes to just mutual funds. I understand they invested in real estate, antiques, gold and maybe commodities and cash. Most Fund Managers do not offer these assets because they cannot charge fees for managing them.

Here’s another statement that should be filtered out by Baby Boomers, “Recent Turmoil in the market shouldn’t derail an intelligent long-term investment strategy”. First it implies you are not intelligent if you do not do what they recommend. It may be intelligent for a person with 10-20 years to go before retirement, though I personally doubt it. But I think it is definitely not intelligent for a Baby Boomer retiring right now. It makes no sense watching your nest egg lose 20%-30% of its value just when you are about to start living off it.

This post is getting too long so I will finish it here and continue with this topic in my nest post too.

The thing Baby Boomers need to do though is read everything with a view that they are not investors but capital preservationist looking for real diversification and you should not be influenced or intimidated by headlines implying you might be dumb to want to protect your nest egg. It’s just plain common sense in retirement.

2 Responses to “Baby Boomers Should Filter Out Much of the Fund Management Advice”

  1. Peter says:

    Hi David,

    I have a problem with your statement in brackets “If you have lost much more than 10% on your risk-based assets like equity and property funds this is actually good advice I think – You’re stuck with your investments for now” at the end of the second paragraph. If the investment has dropped below your stop loss (nominally 10%) why would you hold on to it? There is no guarantee that these investments will not drop to -20% or -30% and therefore you are not following your Number One Rule – Avoid Large Losses. Surely it is better to cut your losses and re-invest when the market is heading in the right direction (up!).
    Cheers… Peter

  2. admin says:


    I fully agree with you on cutting losses. I think on reading me statement I did not make myself clear.

    What I was trying to say if you are a buy and hold investor and your losses are already well below the 10% where I’d have put in a stop loss then you have lost too much to trade out. In that case I think you are stuck with the investment and should monitor it to see if it comes back so you can either exit the investment or put in a 10% stop loss from that point.

    I thought the phrase “much more than 10%” implied that as the case. But it is not clear.

    Rule#1 does apply if you had a stop loss in place. If you didn’t and the losses are well below 10% then I say you should not trade out but monitor them.

    Does that make it clearer?


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