Watching media too much can lead to financial mistakes, says Santa Rosa wealth manager

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Matthew Delaney

Managing partner

JDH Wealth Management LLC

181 Concourse Blvd., #A, Santa Rosa, CA 95403

707-542-1110

jdhwealth.com

Read more tips on and coverage of wealth management.

Matthew Delaney is managing partner of JDH Wealth Management in Santa Rosa. Delaney answered questions from the Business Journal about wealth management.

What difference does the age of a client make in what you suggest to them as an investment strategy?

It is extremely important to incorporate your age when assessing how much risk to take with your investments. In theory, the older you are, the less risk you will want to take as you don’t have as much time to recover the losses if there were to be a down market. Most people would agree with this.

However, age is often ignored when investing and results in people either leaving too much money on the table or potentially running out of money.

For example, take a 55-year-old engineer who hasn’t done the best job saving for retirement. He makes $250,000 a year and is just now starting to save for retirement. If you were to only look at his age, you might argue that he shouldn’t take much risk because he is so close to 65 when he wants to retire. While he may not want to take much risk, his late start to saving might dictate that he should be more aggressive as he needs to make up for lost time.

On the other hand, take a 35-year-old bartender who has a trust fund from granny. While her age might indicate that she can take a lot of risk, she may not need to be aggressive, as she has more than enough money to last her a lifetime.

It all depends on one’s ability and need to take risk. In a perfect world, the closer you get to retirement, the more risk you take off the table.

How do you help a client determine what level of risk they are comfortable with when it comes to investing their money? Are there key questions you ask to assess that risk?

Life is busy! Between work, kids’ sports schedules, retirement, grandkids, etc., when does the average person find the time to figure out how much risk they are comfortable with when it comes to their investments? Unfortunately, many people don’t ever answer this question, and they end up harming themselves in the end by making an irrational decision.

When it comes to money, we all have two sides to our personalities. There is the logical side and the emotional side. When we ask someone how they feel about a potential big downturn in the market, they will typically respond with a very logical and rational answer.

While no one wants to lose money, they will say that they understand the risk and don’t mind it.

When the risk shows up, so does our emotional response. The response is often, “I had no idea I could lose so much so quickly. I never would have signed up for this had I known that.”

How can the same person have such different reactions to the same event? It’s because it is so much more personal once it happens to you. Before, it was only theoretical. Telling someone that the markets could drop by 30% sounds very different than telling someone that they just lost $300,000 on $1,000,000. We encourage our advisers at JDH Wealth to ask a different set of questions to help clients work through how they might react in a down market:

Matthew Delaney

Managing partner

JDH Wealth Management LLC

181 Concourse Blvd., #A, Santa Rosa, CA 95403

707-542-1110

jdhwealth.com

Read more tips on and coverage of wealth management.

1. If your investments were to double in the next 10 years, would life be any different?

2. If your investment dropped by 50% in the next 5 years, would life be any different?

Their answer will immediately tell us what type of risk profile we are working with. We can then adjust our approach to best help them manage the risk.

With faster technology, algorithms to pick stocks and instantaneous investments, are clients making more frequent moves with their money, not being content to stay with investments for the long haul? What do you tell them if you consider this approach unwise?

No one can argue that technology has not had a profound impact on investing. Unfortunately, technology is not always favorable to the end investor.

People now have the luxury of having real time information and can react in a very quick fashion. Whether it be bad news for a company, upbeat earnings, etc., investors feel that they are making a good move, but they are confusing activity with a solid plan.

It is important to have an investment policy statement (IPS) to serve as a road map. Too often people make decisions without consulting the road map to determine if it lines up with their short- and long-term goals.

What mistakes do you see individual investors making in the current financial climate?

Let’s go back to the 4th quarter of 2018. As you probably remember, it was a pretty bad quarter for the stock market and many forecasts showed no light at the end of the tunnel.

Too many people chose to listen to the naysayers and move to cash. While many financial blogs were predicting that this was just the tip of the iceberg and 2019 was going to be worse than 2018, investors were faced with some pretty unnerving predictions. Those that lost were the ones that chose to move their money to cash to wait out the turbulence. Unfortunately, when you get out of the market, you also must decide when to get back in.

The first quarter in 2019 handsomely rewarded investors who stayed the course. By the end of March, you could see those sitting on the sidelines slowly start to move back into the markets. Unfortunately, they missed the entire first-quarter upswing.

We never make predictions on how markets will perform in the short run because it is a dangerous game to get in and out of the market with the hope of timing things correct. We continually tell our clients to not take more risk than they have to, ignore the financial media that loves to dramatize daily events, invest the money when they have it and take it out when they need it.

What is your best advice on planning for a financially secure future?

Many studies have shown that money is one of life’s number one stresses. If you want to have a secure future, you need to plan.

Make sure you have three to six months of your annual salary in a savings account for emergencies. It is critical that you save close to 15% of your paycheck over your working career. This can be done through a 401(k) plan, IRAs, or similar type investment accounts. Try to live within your means and aggressively save each month. When done early, this strategy provides for a much better retirement.

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