Last Chance to Design Robust Retirement Plans for the Future

I have found some people in the wealth management industry have come from an engineering background. They have used their engineering training to try and design robust retirement plans for their clients. They understand an investment philosophy needs to be able to withstand serious market turmoil.

One of them was a civil engineer who designed oil rigs. He said if he designed oil rigs like the finance people design investment systems most oil rigs would break up in a hurricane, but they don’t.

How would you like to hear that every 5-7 years a hurricane will destroy most oil rigs and it might take 5-7 years to get oil supplies back to what they were? Just hang in there and oil will flow again.

These engineers-turned financial planners try to design investment plans with “plan B’s”, loss minimization strategies, what if scenarios, and cash is a position tactics. Their aim is to actively protect and preserve your capital against financial tsunami’s so your nest egg will survive and thrive. They try to anticipate the one-in-a-hundred-year crash – the black swan event.

Despite what wealth managers tell you, there are times to be in the markets and times to be out of it. So why is it most funds have to be fully invested in the markets despite what the market is doing. There is a total disconnect with reality. Why is it they cannot be in cash if it warrants it?

Burroughs Computers used to have a term called “graceful degradation”. It really described how they tried to ensure a mainframe computer would shut itself down gracefully rather than just crash. Why don’t they design investment strategies that allow for gracefully withdrawing from the markets?

The Wealth Management industry has failed on a global scale to protect our wealth. Their buy and hold philosophy is doomed to failure every few years. They even tell us you can expect the markets to fall every 5-7 years so keep that in mind. Why?

The problem is not so much that markets drop but by how much they drop. It the size of the loss that kill your nest egg.

In 2000 many Baby Boomers just entering retirement lost 40% of their nest egg. They had to keep on working to replenish it. They recovered most of their losses in late 2007. Just when they thought they could retire comfortably the sub prime takes away 20-30% of their nest egg again.

Wouldn’t it have occurred to someone in the wealth management industry watching Baby Boomers lose much of their life-time savings in 2000 that something might be wrong with their buy and hold investment philosophy.

The wealth industry needs to be put on notice that it needs to lift its game. It needs to be made accountable for it’s failures to minimize losses, never mind provide consistent returns.

Greg Heiple of Balance Zone Investing (Teeter Totter Principle) got the message loud and clear and changed the way he did business as a financial planner.

Wealth managers have enshrined their buy and hold philosophy as the one true way to retire comfortably but every 5-7 years, 20-40% of your savings are going to be destroyed.  Buy and Hold is easy for them to administer and it maximizes their income which is based on funds kept under management, NOT how well they protect your wealth.

If an engineer built a bridge that had to be rebuilt every 5-7 years he’d go to jail, no questions asked. He certainly wouldn’t be paid as the bridge was being repaired either.

Wealth Mangers please go back to the drawing board and design a better system based on protecting and preserving assets first. Then build in components that can add value to our nest eggs through responsible investing. We don’t mind paying reasonable commissions for doing that.

Redesign your compensation system so that you are as committed as we are with the investments you make on our behalf.

Be rational and objective and don’t write prospectus that force you to be in the markets even when it is in melt-down like now.

Make sure you have the flexibility to comprehensively manage our money at all time, even if that means going into cash.

Ensure all the transactions you make on our behalf are fully transparent.

Allow us the right to audit our account with you so we can assure ourselves you are being financially responsible and not siphoning off money through high charges.

Keep us fully informed with regular newsletters, e-news and email about what you are doing to protect and grow our retirement nest egg.

Re-design mutual funds so that prices are known at the end of the trading day, not three days later as unit prices.

Find new ways to reduce our exposure to risk-based assets and minimise any losses in times of market turmoil. Build in those protection mechanisms to all retirement plans.

Learn the needs of Baby Boomers as they draw down their nest eggs and help them make it last with alternative investments including annuities and term deposits for cash buffers.

Try to find ways to invest in real businesses that produce real goods and services, rather than trade shares in large corporations to increase paper wealth purely through increased demand for the same few shares.

Try securitizing investments in our nations small to medium business to off-set risk but more to the point to provide them with sorely needed capital to develop smart technological industries rather than relying on undeveloped single sectors like oil, iron ore, sheep or financial services, as we tend to do in Australia.

Wasn’t the resource boom meant to protect Australia from recession?

At least securitized business investments may lead to the productive use of our money in real companies building real value, rather than pumping up share prices in large listed companies.

Here’s a warning for all wealth managers. Argentina is about to nationalize their $30Bn private pension funds. They have declared the scheme a failure and have told their people the government can do a better job of looking after the nations’ pensions. To me it is just a grab for cash by a government in trouble. But it will be the end of the Argentinean wealth management industry as we know it.

So the precedent is about to be set. As the world appears to be moving more towards socialism, more Governments may take over pensions funds that perform badly, for the good of the nation ;-(

Take note, it is change or die time for the wealth management industry across the world as governments will eye all that money you are holding in trust for our retirements and want it.

Australia has A$1.4 Trillion in government enforced pension schemes. Its just a slight change in the law to redirect that money into government control in times of financial crisis like now, and almost no one will object because of the lousy job you have done.

Look how easy it was for the UK, the US and the EU to take over their private banks if you don’t believe me. This may be your last chance to redeem yourselves.

3 Responses to “Last Chance to Design Robust Retirement Plans for the Future”

  1. Elizabeth says:

    These are scary times, financially, to just about everyone. And certainly protecting my nest egg is on my mind! I’ve enjoyed (well, not sure that’s the right word) reading countless stories about the market and how we got to this point. And I’ve also read The Big Gamble, which I almost think should be required reading. People need to realize that, really, any “investment” is really “speculating.” You’re banking that something will go up in value. Look at real estate — everyone thought these “sure’ investments would go up, up and up, and now people are discovering they can owe more than their homes are worth. This book realizes the value of speculating and investing, while it goes through a picturesque account of financial bubbles, including, of course, the recent subprime loan debacle.

  2. admin says:

    Hi Elizabeth,

    Thank you for commenting on this post and for pointing out another site with high value information on investing vs. speculation.

    Now people are finding out that no asset class goes up for ever and that they should listen to their instincts rather than the wealth managers with dollar signs in their eyes.

    If it appears too good to be true, it probably is, seems appropriate here.

    From my quick read of the web site and the book excerpt it is a valuable addition to the education of the rest of us on how we should educate ourselves on investment and risk.

    Everyone should buy the book for a good Xmas read.

    David

  3. Elizabeth says:

    Glad you looked into the book and site and found both useful and of value. Boy, there’s so much conflicting information out there, and there are SO many bogus recommendations. That’s why I like starting, at least, with information that other people have found useful and informative (and true!).

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