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