I love seeing my family and friends when I return to my hometown for a visit.  Most have a general idea of what I do, yet some think of me as either a banker (“what are you paying on CD’s these days”) or a broker (“got a hot stock tip for me?”).   However, I believe most understand that I work with investments and have built a business serving the needs of people like them.

It is not uncommon for some to ask my advice when I am home.  At a family dinner on my most recent trip, Uncle Phil (the name has been changed to protect my good standing in the family) asked for my opinion on getting completely out of the stock market until after the election, or “until things get better.”  Now keep in mind, offering advice requires a comprehensive knowledge of the individual’s situation – goals and objectives, assets and debts, sources of income and spending habits, plans for retirement, risk tolerance, etc.  Diving this deep into his question would likely have gone well past dessert and into the wee hours of the morning.

But he wanted my opinion, so I carefully posed a follow-up question to him: “How do you define when things are better?”  I think the question caught him off guard, so I added “Would you like to see the market rising before getting back in?”  Without hesitating, he responded “Well, yes!”  So I explained that once the market had advanced sufficiently for him to have the comfort to invest, he likely would miss a meaningful contribution of long-term gain needed to meet his retirement needs.  “Uncle Phil, this is called opportunity risk and you cannot manage this risk other than by staying committed to your investments for the long-term.” He winked and then offered his thanks for the feedback.  Whether he will take the advice is another story.

My cousin Ben, who we lovingly refer to as “Cowboy”, then jumped into the conversation and shared that he was considering cashing in all of his investments and adding the proceeds to a single annuity paying 4 ½% that was guaranteed for the rest of his life.  Boy, this onion had many layers to it and I wasn’t sure if I had the brainpower to tackle it after a long day of driving.

I told Ben that the rate appeared to be very attractive compared to other alternatives and could understand its appeal.  However, “Ben, all of your eggs will be in one basket.  You will be lacking diversification and assuming the risk of a single insurance company.  Is this company highly rated?”  I added, “Also, what would happen if inflation were to rise in the coming years?  Would the annuity rate rise with inflation or be fixed at the quoted rate, resulting in a diminishing return after inflation?”  Ben didn’t know, but committed to look into these risks of the product before taking action.

I cherish time with my family and friends and am honored when they seek my advice.  Their concerns are real and impulses not that uncommon.  However, there will never be the perfect solution and if I have helped them by pointing out risks that may not have been that apparent, then I consider it a rewarding trip home.