Steven Podnos, MD, CFP

I first noticed grey hair arriving during my twenty years as a Pulmonary physician.  The next fifteen years as a financial planner has only added to my “distinguished” hair color.

One would like to think that with age comes wisdom.  Of that, I can’t be sure, but I do know that I have learned much and have formed many opinions.

Paradoxically, one of my strong opinions is that being too dogmatic is probably wrong.  In medicine, we see the reversals of major dogmas on a regular basis. Recall the recommendation of postmenopausal estrogen for cardiac reasons and the dietary recommendations of high carbohydrates and low fat. As an attending on ICU rounds, my remark back to a young student with the “latest study” was usually “just wait.” It reminds me of a saying in medical school that “half of everything you are learning will be proven to be wrong over time.”  I often worried that the only things I would remember from school would be from the half that was wrong!

In finance, dogma may be just as much in error. Certainly, there are some easy strategies that are more common sense, such as saving enough for retirement. But the dogmas that circle around efficient markets, index or active mutual funds, and more must be considered with humility.
	Much of what passes for wisdom is really a deep understanding of the patient (or financial planning client). The depth of information that can be shared and the amount of decision-making that can be delegated varies from person to person. How the medical or financial practitioner determines this is art, not science. 

Let me share some thoughts from the experience and “art” of financial planning.

The first and most important is that financial planning is not the same thing as investing. Investing is easy if you have patience and discipline (not everyone does of course). Financial planning is the process of integrating a number of complex issues so that you have a high chance of financial success. These issues include estate planning, asset protections, retirement withdrawal strategies, educational planning, debt management. and more. Too many people think that all that is important is the investing side. Unfortunately, too many people depend on salespeople at brokerages and insurance companies to be their “advisor,” not realizing all the crucially important issues that are not even discussed there.

No matter how grey I get, I continue to be surprised at how well the brokerage and insurance industries continue to hide their (to me outrageous) charges.  In 15 years, I have yet to see any charges outlined or explained anywhere on an insurance brochure, illustration or brokerage statement.  There continues to be a myriad of hidden fees, kickbacks, and more that markedly hinder the chance of financial success. Now, people deserve to be paid, but the charges I see are ridiculous. I’ll say it once. Few investors realize that over 90 percent of “advisors” are salespeople making commissions. They are motivated primarily to make money for their employer and themselves. There are an increasing but small number of true Fiduciary advisors that only make money for advising the client and not from selling them products. If people understood the difference in service and cost between a stockbroker or insurance based “advisor” and a true fee only planner, the planners would have lines out the door.

Our emotions continually act against our best interests when it comes to our financial lives.  It is hard not to get caught up in the euphoria of a rising market (stocks, real estate, or other) and many have the fear of “missing out.”  Yet, it is usually too late to act.  Conversely, the real bargains sit around when no one wants them.  As an advisor and investment manager, it is particularly difficult to act on these issues as clients don’t understand-but that’s part of the job. As a personal investor, no problem.

Many people grossly underestimate how much money they will need to retire on based on the type of lifestyle they desire. As we live much longer and therefore spend more time in retirement, we need even more money saved and invested to avoid the risk of running out.
	At the same time, there is a constant tension between enjoying the fruits of our labor (both during and before retirement) and saving. We all know of people that became ill and/or died early and who did not get to enjoy their money. But, we don’t know if we will be lucky or not, do we?
	The financial press (TV, magazines, newspapers, etc.) is incredibly destructive to our chances of financial success.  They play constantly on evoking emotional responses-greed and fear expressly. These emotions trigger our attention and unfortunately may stir us into a harmful action.  The best thing most of us can do is to actively avoid them.

There is a regular and understandable behavior to relate market moves to things we see in the news. The reality is often unclear.  All you have to do is see large swings in market prices in the same day or over a same period of time with no new “news” to understand that the relationship between the news that day and the market is weak at best.

Picking out individual stocks for most average investors seems risky to me. There are hundreds of thousands of people out there better suited to have the information to do so.  People that work for that particular company and analysts that study it full time seemingly have the “edge.”  Companies often make mistakes with their planning and their money. “Great” companies often do not have great stocks, and vice versa.
	Life insurance is insurance. It is not an investment.

Every annuity I have seen from a major insurance company is accompanied by an impossible to understand prospectus that ranges from 150 to 500 pages in length. The “investor” in such annuities does not have a chance. The broker makes 6-10 percent up front, and the investor is left with a high fee (3-5 percent annually is not unusual) complex product to wrestle with.

Two major factors determine long term financial success. The first is saving enough (and spending less). The second is investor behavior.

Selling from fear and buying with greed/euphoria both can decimate a portfolio.  The exact composition of a long term asset allocations are unlikely to make a major difference in success for most families (assuming no extremes).

I believe many of us underestimate the erosion of purchasing power during our retirement years. We will be living 3-4 decades depending on our savings needing to make distributions that keep up with taxes and inflation.

To compare your portfolio to a “benchmark” like the S&P 500 makes absolutely no sense unless you are investing 100 percent of your funds in stocks from that index. Your portfolio should be diversified, which means that no benchmark fits it. Your portfolio should be designed to attain certain long term goals, none of which fit a benchmark either. It is hard to stress this enough.

Planning, long-term historical perspective, and behavior coaching are the major benefits of having a trusted financial advisor. If you are not getting these benefits, you need a new advisor.
	
	It is very hard to invest based on politics. We had the great recession of 2008 after eight years of a relatively pro-business Republican president. Then, under Obama-a relatively anti-business, high tax proponent, we had the start of a good market recovery but a weak economy, now we have both a good market and good economy with yet a very different style of politics.
	
	

teven Podnos MD CFP is a fee only planner and principal of www.wealthcarellc.com.  He can be reached at Steven@wealthcarellc.com.

Editor's Note: Blogs are contributions from members of the medical community and other experts. These blogs are an opportunity for bloggers to engage with readers about a topic that is top of mind, whether it is practice management, experiences with patients, the industry, medicine in general, or healthcare reform. The opinions expressed here are that of the authors and not Medical Economics.

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