#105 - Why You Should Ignore All Market Predictions

Welcome once again to The Retirement Answer Man show. I’m Roger Whitney, AKA the Retirement Answer Man. This episode of the show is one where I really get to live up to that name, because I’m answering two very practical listener questions covering how to figure out your “risk tolerance” in light of the different types of investment vehicles you have in your portfolio, AND whether or not it’s smart to get your money out of the financial system altogether by investing in real estate. As you can see, there’s some great stuff on this episode, so be sure you take the time to listen.

What is “risk tolerance” and what’s wrong with the way we assess it?

You may have heard the term “risk tolerance” before. If you’ve got any experience in the investments arena you surely have. But what does it mean? In short, it’s the amount of risk you’re willing to endure in order to potentially get greater returns on your investments. But I have to admit that I’ve got a pet peeve about this whole concept… and I’m not really sure it’s the best way to go about assessing what you should be investing in. Why? I’d love to fill you in, and I will on this episode.

Should you be following the advice of those making market predictions?

The very short answer is “no,” you shouldn’t. But do you know why? It’s almost every day that you hear somebody espousing another “new” way to invest that gives greater returns, do you know why it would be a mistake to follow the advice of these people? It’s because I have a quarter that has a better chance of determining the right investments for your money. Really, I do! If you’re confused, that’s OK, I’ll unpack all of that and more as I tell you why those making market predictions are not to be trusted, on this episode.

Should you take money from your retirement accounts and put it into real estate investments?

On this episode a listener admits that he’s very skeptical of the whole investment scene because of Madoff and other scandals. He simply doesn’t trust it anymore. Instead, he’s considering putting his money into real estate in the form of rentals. Is that a good idea? I’m not one to discourage real estate investing by any means, but I’m also not sure that taking all of his money out for that purpose is wise. And I’m not sure that skepticism is the best reason to do so, either. You can hear why I say both of those things, on this episode.

Should you treat your various retirement accounts the same when it comes to risk assessment?

One of my listeners today asks this great question. It’s great because it’s taking into consideration the things that should be considered. Think about it. You have varying investment vehicles that you use - IRAs, 401K, bonds, stocks, etc. Each of them has their own unique characteristics, including time frames and investment strategies. Doesn’t it make sense that you’d want to have a unique approach to your risk assessment in light of those kinds of characteristics? On this episode I’m going to walk you through the basics of how to think about those kinds of issues!

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN

[0:26] Roger’s thanks and introduction to this great episode.
[1:20] How you can get Roger’s “6-shot Saturday” emails.

WHAT DOES THAT MEAN? SEGMENT

[2:45] Today we define the term “risk tolerance.”
[3:20] Questionnaires you may face when determining risk tolerance.
[5:41] The problems Roger has with some of the “best practices” behind risk tolerance.

HOT TOPIC SEGMENT

[11:11] A confession from Roger.
[12:05] Should we listen to market forecasts? Why not?
[14:19] Forecasting isn’t about predicting the market, it’s about marketing the prediction.

PRACTICAL PLANNING SEGMENT

[17:26] QUESTION: Does it make sense for us to redirect some of our 401K money into rental properties?
[26:55] QUESTION: Should I handle my risk tolerance allocations the same in all my various accounts?