“Just sit right back and you’ll hear a tale, a tale of a fateful trip, that started from this tropic port, aboard this tiny ship.” So goes the opening theme song for the 1960s CBS network comedy hit, Gilligan’s Island. The show told the tale of two crewmen and five passengers aboard the SS Minnow who were shipwrecked somewhere in the middle of the Pacific Ocean after getting hit by a tropical storm.
Getting hit by market volatility can also shipwreck your retirement. The 2016 Dalbar Quantitative Analysis of Investor Behavior shows that more than the investments, it’s the investors themselves who sometimes sabotage their own best intentions. What kind of investor are you? Using the lead characters from Gilligan’s Island, we’ll shed some light on investor pitfalls with tips on how to avoid them so that you can prevent the accidental shipwreck of your retirement dream.
WILLY ‘LITTLE BUDDY’ GILLIGAN
Gilligan was always getting hit with Skipper’s hat, but he was also beloved by many. He was best known for his stupidity, but his ignorance often turned out to be a good thing. If you really have no idea what you’re invested in but things have worked out pretty good so far, then you might very well be a Gilligan investor.
The pitfall that you have to watch out for appears when you are at or near the time of retirement. When you are saving regularly and putting money into your account, then that account is almost always going up. It would be a real Gilligan move to assume that because your portfolio is gaining, you must be invested in some pretty excellent stocks. This might be true, but the real test comes once you stop adding money to the savings accounts and start taking the money out. If another 2008 comes along and you haven’t made any changes to your investment strategy, then your retirement could be in serious danger. Once your portfolio springs a leak, not even the Skipper can save you from sinking.
What to do: Embrace your inner Gilligan, recognize your limitations, and seek professional guidance BEFORE the problems start. Don’t know where to begin? Ask your questions here.
MR. THURSTON HOWELL III
Leave it to someone named Thurston to pull off multiple wardrobe changes on a supposedly deserted island. Thurston Howell III was a wealthy businessman who loved money as much as he loved his wife, Lovey, and he didn’t often let anyone forget about either.
“Screw the rules, I have money!” was Mr. Howell’s motto. If this is your investing theory as well, then you could be in for a bad surprise once retirement begins. It’s easy to earn returns when you’re putting money in the pot – even Gilligan can do it. But what happens when circumstances beyond your control start to drain your million-dollar account? The U.S. Department of Health and Human Services estimates that 70% of all people age 65 and older will need some form of long-term care. The average cost in the U.S. for a private room in a nursing home is $92,378 a year, and most retirees need long-term care on average for three years. But what if your Lovey needs care longer?
What to do: There are newer asset-based strategies on the market that even the Thurston Howells of this world would approve of. These are permanent life insurance contracts that leverage your money so every dollar you put in comes back to you as two or three times more. The money can be used to pay for long-term care costs or, if you never end up needing care, then the money goes to your beneficiaries. Find out more here.
The famous movie star of the bunch, Ginger Grant was always reminding everyone that she had star-status, and she often relied on her good looks to get what she wanted. With her stunning red hair and porcelain skin, it was hard to take your eyes off her, however, on a desert island as in real life, looks can only get you so far.
Are you the type of person who judges things by how they look? You are not alone. The average investor judges the success of their portfolio by appearance alone, with a focus on the rate of return. How much am I getting? What am I earning? This is not the real measure of a portfolio’s success.
Consider this: If you had $100,000 and lost 50% one year and then gained 50% the next year, your average rate of return would be 0%. So, would your account balance be $100,000? No. I would be $75,000. Your rate of return was 0%, but you still lost money. Appearances can be deceptive.
What to do: One way to avoid market risk during retirement is to get a guaranteed income. Guaranteed investment vehicles that do this will continue to pay you the same amount of money every month no matter what the market looks like. Good times or bad, you’ll still get that paycheck. Find out more here.
MARY ANN SUMMERS
The girl-next-door type is someone that everybody knows and feels comfortable around. Mary Ann was humble, hardworking, and more than a little jealous of Ginger. This castaway could also be found cooking and cleaning.
If you’re a Mary Ann type of investor, then you’re self-reliant and hardworking, but you don’t take many chances. You stick with what you know. Because of your tendency to avoid racy things, you sometimes get jealous when you hear about the higher returns earned by your friends or neighbors, but in the end, you feel better knowing you’re not invested in anything that can lose you money.
What to do: You might not be losing money, but you also might not be gaining enough, either. This is what’s known in the industry as, “Going broke safely.” Talk to your financial professional about indexed returns. Financial vehicles that tap into the power of indexing are able to capture higher gains than fixed products, yet they still offer the same kind of guarantees. Ask us to do a comparison.
We hope you had a little fun learning about the pitfalls to avoid during retirement. As always, if you have any questions, don’t hesitate to reach out to us. We’re always happy to help you test one financial product against another, regardless of your investor personality type.