Investing: What are you so afraid of?

published by:
Amanda Clouser, CFA, CFP®
September 11, 2020

Do you believe you can fund retirement, buy a new home, and pay for your future travels with your checking account? Unless you have way more money than most, it is unlikely that a cash account alone will allow you to achieve your goals. It is almost impossible to save enough money for a secure retirement (let alone to achieve other goals) unless you invest. And yet, average checking account balances recently hit a 26-year high.

Federal Reserve Economic
Data; Link:

So why are you hoarding cash and avoiding the

I don’t know what I’m doing 

of knowledge and feelings of confusion can be paralyzing. Most intelligent
people won’t move forward with important decisions until we understand the
consequences. So, it’s not surprising that many sit out of financial markets
because they simply don’t understand them. A lack of financial knowledge among
otherwise highly educated people isn’t unique. Unless you pursued the topic
through higher education or find yourself seeking out investment literature as
hobby, there is no reason you would know this stuff. The lack of personal
finance content in our public education system is rant inducing (but I’ll spare

of us have careers and family commitments, and just don’t have time to dedicate
the hours of research necessary to get comfortable with investing. Don’t fret,
if you have a desire to learn, there are great online resources. I find
engaging, objective and well-explained material.

course, you could engage
RCS (or another fee-only fiduciary) for financial questions that you have
neither the time nor inclination to answer on your own.

I’m too afraid!

of losing the nest egg you have worked so hard to accumulate is a natural and common
feeling. Most of us have read our share of news stories explaining how the
markets have destroyed portfolios and ruined hopes and dreams. You may be so worried about losing money in a market
downturn that you hoard cash in a bank account. And while you feel your money
is safe in the bank,

say you have $100 in a savings account that pays
1% interest. After a year, you will have $101 in your account. However, if
inflation is 2% over this same period, you

$102 for your purchasing power to keep pace. Since you only have $101,
. Your savings must outpace inflation over time,
and bank accounts historically have not kept pace.

Even if your bank account paid 3% and inflation was also
3%, you would not keep pace. Don’t forget you owe taxes on your 3%
interest! For the sake of simple math assume you are in the 30% tax bracket: 1%
of your interest is diverted to the government which means you must earn at
least 4% just to break even.

volatility and market downturns (even prolonged ones) is not the same as losing
money. If you sell on the way down, yes you lock in those losses; but consider a
hypothetical investor weathering the

See end note for disclosures

An investor
with a $100 initial investment enters the market in January of 2008, with a hypothetical
70% stock/30% bond diversified portfolio. This investor stuck with their
strategy, rebalanced as necessary and saw their portfolio value return to
positive territory by September 2010, less
than 3 years from the initial crash. Your
investments may endure a bumpy ride but staying the course with your trusty
plan and diversified portfolio will likely see you through.

suppose you were a committed investor who stayed the course
continued to save and invest during
this time period. You bought into the market at increasingly lower cost basis
and reaped even greater rewards as the market recovered. An additional $1/month
contribution provides our hypothetical investor with a portfolio value that
recovered about 1 year sooner than the Lump Sum investor who chose to hold

course, this added savings allows for a significant increase in wealth over the
long-term compared with the single lump sum investor.

See end note for disclosures

I don't know who to trust

is, unfortunately, a valid concern. Many brokers/"advisors" work for
banks, brokerage firms, or insurance companies. Regardless of how friendly or
intelligent, their compensation is tied directly to the number of products they
can sell you and the "share of (your) wallet" they can extract. 
We often meet clients with expensive investments that are not best serving
their needs. So how can you navigate a financial services industry that continues
to confuse and fleece you?

with a clear idea of where you are going. What do you need your money to
accomplish in 5, 15, 30 years? Write these goals down and estimate the cost of
each at the required future points in time. Defining your successful outcomes
is an important first step; you can’t craft the route until you know your

are several online calculators available to estimate how much your current nest
egg must grow via added savings and returns to achieve those goals.

value of money
calculations are fun! If you are not as enthused by financial math as RCS, let
us create a plan to model the costs of your retirement lifestyle and your goals
(European river cruise, anyone?). We will create and manage your diversified portfolio
in pursuit of risk-controlled returns. We will stress test your portfolio and
keep you informed of the mathematical likelihood of achieving your goals no
matter what life brings your way.

mission is to clarify, educate, and empower our clients to feel confident in
their financial decisions. Investing doesn’t have to be complicated or scary.


Chart one assumes an initial $100 investment on 01/2008 and held through 12/2010 with annual re-balancing.

Chart two assumes an initial $100 investment on 01/2008 along with $1 investments at the beginning of each month and held through 05/2018 with annual re-balancing.

Portfolio in each chart is 70% stocks, 30% bonds. Stocks represented by the DFA US Adjusted 2 Market Index and Bonds represented by the Bloomberg Barclays US Aggregate Bond Index. You may not directly invest in these indexes. Performance
data shown represents past performance. Past performance is no guarantee of
future results and current performance may be higher or lower than the
performance shown. The investment return and principal value of an investment
will fluctuate so that an investor’s shares, when redeemed, may be worth more
or less than their original cost.

Have questions about your personal financial situation? Please contact us to discuss.

Are your retirement funds in alignment with your Risk Number? Are your investments keeping you up at night? Find your Risk Number® now!

About Us

At RCS Financial Planning, our mission is clear and straightforward: to provide personalized wealth planning and investment advice that minimizes our clients' financial concerns and maximizes their long-term peace of mind.. We firmly believe that a true financial partner shows you how to make the best choices for your future by always focusing on your needs first. And our fee-only service model ensures there is no conflict of interest.

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