3 pieces of investing advice, learned from a 40-year career

December 16, 2018

Simply Money’s very own Ed Finke is retiring after more than 40 years in the financial services industry! Before he embarks on his next adventure, he wants to share some parting words of investing wisdom – and a final farewell - with the readers of The Cincinnati Enquirer. 

Looking back at my career, there have been many important lessons learned. As I move into retirement, I find that the best of these lessons is also the simplest and easiest to understand. Whether you’re a novice investor or have been using your 401(k) for decades, I hope you keep these three points in mind. 

Think long term. Stocks represent an “ownership” position. Bonds, “loanership.” You want to be an owner long term. However, stock ownership brings with it inherent volatility, especially in the short term (one to three years). If you have a need for specific funds in the short term, i.e. an up-coming down payment, college or wedding expenses, that money should not be subject to the risks of stock ownership. For longer term goals, i.e. providing income to keep up with inflation over a 20- or 30-year retirement, you owe it to yourself to have some stock exposure. 

Diversify. The great fear of most novice investors is that they will lose all of their money. Horror stories of companies like Enron becoming suddenly worthless get a lot of attention. Most of those big losses you hear of are because an investor had all of his/her money in one company that went under. In my opinion, no more than five to 10 percent of your total portfolio should be in individual company stocks. The core holding for most investors should be an exchange-traded fund (ETF) that tracks the performance of the S&P 500 (basically the 500 largest U.S. publicly-traded companies). Additional diversification can be added with ETFs that track international and smaller company stocks, as well as corporate and government bonds. 

Don’t panic. An inviolate rule of investing is that stocks will occasionally lose value (usually, it seems, right after you buy them). Historically, the stock market (as measured by the S&P 500) has seen a 10 percent downturn (called a correction) every 12-18 months and a 20 percent or greater downturn (called a bear market) every six years or so. During my long career, which has seen many of both corrections and bear markets, one thing has remained true. The S&P 500 has always come back to reach new record high levels! It’s been said that the stock market takes money from the impatient (who panic and sell during downturns) and gives it to the patient.

And here’s one last thing. Make sure you fully understand the compensation a financial advisor and his/her firm receive from any investment you make. This is true for individual securities and ETFs as well mutual funds, insurance policies and annuities. The less you know of how and how much an advisor is paid, the higher the compensation probably is! 

Lastly, I want to thank you sincerely for letting me share a bit of your precious time for all these years, whether daily on our Simply Money radio show or weekly here in The Enquirer. I have always considered it both an honor and a responsibility that I have not taken lightly. Merry Christmas, Happy Holidays and here’s to a great and prosperous 2019… and many more years to come. 

Responses are for informational purposes only and individuals should consider whether any general recommendation in these responses are suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing, including a tax advisor and/or attorney. Nathan Bachrach and Ed Finke and their team offer financial planning services through Simply Money Advisors, a SEC Registered Investment Advisor. Call (513) 469-7500 or email simplymoney@simplymoneyadvisors.com.