posted on January 30th 2017 in Austin CFP Team Posts with 0 Comments /

This post is a preview of WorthPointe’s e-book Evidence-Based Investing: Separating Fact From Fiction, written by Certified Financial Planner™ Scott O’Brien. In Evidence-Based Investing, Scott discusses the myths and misinformation that most often slow or halt our financial goals. Get your complimentary copy of Evidence-Based Investing here.

The consequences of going from rich to poor should dominate your asset allocation decisions. You may think you’ll never go through a layoff or the price of your house won’t drop significantly, but that’s irrelevant. It could happen.

If you have $10 million, turning that sum into $20 million doesn’t really change your life. It certainly isn’t painful. However, going from $10 million to $3 million, $1 million, or just a few hundred thousand will dramatically change your life.

You need to plan with a virtual certainty that you’ll have a big bear market affecting your portfolio at some point.

Let’s say there is a 5% chance that your financial plan might fail. If that 5% shows up and you can’t make it, that’s bad asset allocation. You need to think of a Plan B — maybe you’ll retire later or buy a less expensive car.


Can you believe most advisors don’t even discuss Plan B’s with their clients? They dismiss it or say, “don’t worry about it.” But then Plan A blows up.

The name of the game for many investors is not necessarily to get rich, but rather to avoid becoming poor. The mindset must not be to try to beat the market. Instead, you want to not take a beating by the market.

You see, when you invest, you could be wrong about how things will progress.

Start by imagining that stocks will deliver great returns over the coming decades. Despite that, imagine you invested conservatively with stock exposure of less than 50%. Clearly, you’ll make less money — even a good deal less — than if you’d taken a more aggressive route.

What is the consequence of your mistake? You’ll be driving a Camry in retirement instead of a Lexus and vacationing in Miami instead of Europe. Disappointing maybe, but hardly disastrous.

Now imagine you took the riskier route, but stocks didn’t do what you expected and you lost money. If it went exceptionally bad, the consequences might leave you taking the city bus to your retirement job because you can’t afford a car or vacation.

You should never treat the highly unlikely as impossible.  
Read the rest in Evidence-Based Investing. Get Your Complete Copy of the Book Now.

about the author: Scott W. O'Brien CFP®, EA

scottScott W. O’Brien CFP® is a CERTIFIED FINANCIAL PLANNER professional who serves clients by coordinating their financial lives and assisting them in making smart financial decisions within the areas of investments, retirement planning, insurance strategies, tax minimization, and estate planning.

Scott was honored as the winner of the 2015 Five Star Professional Wealth Manager for Austin, San Antonio and the Central Texas region. He has been quoted in the Wall Street Journal, US News & World Report, and Investopedia.

Learn more and/or Contact Scott

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