Financial Literacy Will Never Protect Your Retirement Nest Egg

April is the official month for National Financial Literacy. And today I found a web site dedicated to provided advice to help with your financial well-being.

But financial literacy will not and never will protect your nest egg. I don’t care how many financial literacy courses you take the financial wizards will find some way to part you form your money unless you take control.financial literacy month

The site is called Financial Literacy Month and it include a  30 step program to financial wellness, one step for each day of April.

I have scanned the site and checked some of the 30 steps and I have to agree it is a great start for getting control of your finances.

Step 28 is, “Assemble a Financial Team” with the opening paragraph stating,

“Managing your finances can be like putting together a puzzle; all the pieces need to fit in order to be rewarded with the “big picture.”   Working with one or more of these financial professionals can help put the pieces in place.”

Whilst I think it is a good blueprint for getting some order and direction if you need it, I believe you need much more with respect to Step 28.

Your current investment losses if any may very well be due to taking the advice of your financial planner without putting in place controls and procedures to protect your capital when an unforeseen event like the credit crisis destroys millions of retirement nest eggs in just 18 months.

The literacy program is great for the day to day planning and management of your finances.

The FED Chairman Ben Bernanke is now urging you all to become financially literate. I won’t knock it.

He says,

“The need has never been greater for initiatives that help consumers learn to manage their money wisely,

The FED’s first initiative is to teach consumers more about ways to avoid foreclosure-related scams.”

What? Don’t you find that a little crazy? And a little late?

Where was the FED when the housing bubble was in full swing with thousands of mortgage agents going into homes and convincing financial illiterate people to take massive loans on houses they could not afford? The Wikipedia entry, “Subprime crisis impact timeline“, states,

“The Federal Reserve fails to use its supervisory and regulatory authority over banks, mortgage underwriters and other lenders, who abandoned loan standards (employment history, income, down payments, credit rating, assets, property loan-to-value ratio and debt-servicing ability), emphasizing instead lender’s ability to securitize and repackage subprime loans.”

The 30 Step Financial Wellness program is a good start for the money you directly control.

It really is inadequate though for long term investment and retirement planning. Just ask all those economist working for the banks, the universities, and all the accountants and financial planners who are supposed to be – FINANCIALLY LITERATE. Ask them how much money they have lost? I am sure that many of them are in exactly the same boat as you, living with 20-30% losses in their retirement funds.

For the money you entrust to others you need a system that puts you in control and ensures your Financial Team work within the agreed strategy and your written down guidelines. Plus they need to be made accountable if they deviate for any reason from the agreed plan.

Isn’t that what they tell you – stick to the plan? Well make sure they stick to Your Plan, not theirs and that they protect your nest egg against large losses – Rule #1.

I’m not sure what Mr Bernanke was expecting you to do with this financial literacy when you get it. There is no way you can have any idea what is happening to your money when your retirement funds are invested with third, fourth and fifth parties. I don’t care how much you learn about finances you would never have been prepared for what happened.

Never, ever trust anyone with your money you can’t see, hear and touch. You need to apply what Master Salesman Hopkins says is an “Emotional Tie-Down”. This is where you look them right in the eye and you say, “I am trusting you with my entire retirement nest egg for maybe 20-30 years or more. I want you to know that if I lose it I will be devastated. I know you are going to guard it with your life, aren’t you? (the words “aren’t you” is the emotional tie-down)

Then say nothing. The person who speaks next will be responsible for your nest egg. So shut up and wait.

If you speak first you let them off the emotional tie-down hook. If they speak first they can normally only do one of two things. Raise an objection, which you can then respond to emotionally. Or they may decide they do not want your business, so you just leave and find someone else. You need to close them – not them you.

Practice saying this in a mirror before you go. This is serious. If Winston Churchill practiced in his mirror before delivering his greatest speeches then you should too. It’s that important. They need to know how serious you are with the trust you are giving them. Most don’t give it a second thought.

Injecting serious emotion into your meeting with your financial planner will ensure they know you are deadly serious about the responsibility you are placing with them and the trust you are giving them. This relationship may be for 25-30 years of more so do it with intensity and deadly earnest.

Just for the record did any of you know that your funds might have been invested in sub prime loans? Or that your “safe” fixed interest mutual fund could be “invest” in oil futures to supposedly give you a good return on your fixed interest investments? Yes, I said in a previous post it is written into the prospectus that your fund manager can use futures and options to “enhance” returns for your fixed interest funds.

It is unbelievable that a financial planner would put your retirement money into a “safe” fixed interest fund that can play the futures markets to enhance return so they can get a bigger bonus. The bonus is the only reason they would take such risk with your money.

You need your financial planner to know that you expect them to read any prospectus as part of their job and to ensure your money is not put at risk beyond what is understood and agreed. That’s their job and what they get paid for. You are paying them for their financial literacy.

Your financial literacy with your retirement fund is making sure your financial adviser knows exactly what you expect of them. Forget about trying to wade through prospectus and other financial documents. They are all written to protect the funds not you.

Have a desk plaque made up for your financial adviser with the words, Rule#1 Avoid Large Losses to David’s Retirement Nest Egg. Put your name in place of mine. That’ll personalize it and ask them to keep it on their desk at all times.

If they decide they don’t want your business, you may have saved your nest egg from large losses right there. So just find an adviser with courage and integrity to do what you ask of them.

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