March 1, 2011

Cover Story

CEO of the Year

Our eight honorees come from a variety of companies and industries, from manu...Read More

Featured Articles


Around Utah


Special Section
Escape the Daily Grind

Editor's Note
From the Editor

Learn from the Best

Regional Report
Northern Utah

Off the Charts

Living Well
Plan to Give

Sticky Wickets

The Golden Egg

Money Talk
The New “Hope Note”

Industry Outlook
Travel & Tourism

Lessons Learned
Uphill Climb

Business Trends
What’s Old is New


The Golden Egg

Don’t Let Your Nest Egg Crack

Tom Haraldsen

March 1, 2011

Just before Christmas this past December, the FOX Network offered up a new prime time game show called “Million Dollar Money Drop.” The premise was somewhat unique in that each contestant couple was “given” $1 million in cash to start the game with, and by correctly answering a series of seven questions, they could retain any money they hadn’t lost by guessing wrong answers. During the four-night event, almost every set of contestants lost all or mostly all of their cash, money that literally dropped down a chute through a trap door when those contestants wagered their money on the wrong answer. The show was a game of course, but the lesson of this “reality” television program has, sadly, become a true reality for thousands of investors who’ve failed to properly manage their money. Many have seen their nest eggs fall down the trap door of a sagging economy when their decisions on investing and embellishing their retirement have gone wrong. Earning their fortune was one thing—retaining it was quite another. Focus on the Future Wealth management depends on long-term planning, not a one-time network event. That means more than just choosing investment strategies. In fact, it may mean one big behavioral change right up front—keeping that 52-inch plasma screen in the living room turned off. “The near-term focus is particularly noticeable in the financial press, with topics like ‘Was the market up or down?’ or ‘What stock was off 10 percent today?’ dominating the conversations,” says Douglas Wells, vice president of the Albion Financial Group in Salt Lake City. “Unfortunately, the answers to those types of questions do not make much difference to successfully preparing for 30 or more years of retirement,” he says. “What does make a difference for the average person is seldom covered in the daily press or on television. Perhaps this is due to the fact that much of the truly important advice is frequently counterintuitive and can often seem out of touch with the day’s headlines.” Professionals who deal with wealth management agree on one thing—that anyone planning for retirement needs to know it’s a process that involves patience and the ability to endure some heartache and roadblocks along the way. “The vast majority [of investors] really focus on the short term,” says John Bird, president and a co-founder of Albion. “Emotions often play havoc with investor returns because there’s a natural tendency to have an emotional reaction to news or events.” That reaction often leads to investors making changes in their plans or a particular stock, sometimes at the drop of a hat and often with disappointing results. A study in 2009 by DALBAR, a Boston-based think tank that is a financial services market research firm, found that while the S&P 500 returned 8.35 percent over a 20-year period, the average equity investor (someone making their own decisions and regularly changing them) earned just 1.87 percent on their money, less than the inflation rate of 2.89 percent for the same time period. DALBAR’s annual Quantitative Analysis of Investor Behavior has regularly shown a large gap between the returns investors actually earn and the returns they could have earned with a “buy-and-hold” strategy. “Investors often look at the short term and gravitate away from funds because they’ve had one or two bad years,” Bird says. “Things do change, as do circumstances, but we really encourage our clients to think things through before they turn on to another course.” Americans are particularly prone to impulsive financial decisions. The average American family has less than $50,000 in savings at the time of retirement, so even with a 5 percent return on investment, that yields just $2,500 to use without touching principal. “There’s a challenge of looking at your savings not as the size of it, but as what kind of cash flow it will provide,” Wells says. “Fear and greed—they are the two things that ruin investment portfolios,” says Billy Peterson, owner of Peterson Wealth Management. “Fear is for what’s happening in the news—the kind that causes knee jerk reactions. Greed is the desire to keep up with others in one’s investment club or circle. People often chase after something that’s really quite elusive, particularly since they aren’t sure what they’re chasing.” Peterson says the past 10 to 15 years have seen three specific roller coaster events on the financial front, each of which affected retirement portfolios and decisions made about them. “Technology stocks were considered a sure bet,” he says. “You could watch people a decade ago follow the herd as others were getting rich; and even when signs began pointing out that that might not be a good decision, there were always ‘order takers’ posing as good advisors who were going along with whatever their clients wanted without truly directing them. Then, of course, it was oil prices going crazy; and over the last few years, the real estate market that eventually collapsed. Lots of people now invest by looking into their rear view mirrors.” Peterson points out that 401(k) plans are now the primary retirement source for millions of Americans. “It used to be the equity in their homes, but that dream has largely been shattered,” he says. “So the 401(k) has become their largest asset, and many are afraid to invest in anything volatile.” Wells says frankly that “decisions matter, they are critical” when choosing where to allocate those 401(k) investments. Many 401(k) programs are based largely on mutual funds, but John Bogle, author of The Little Book of Commonsense Investing, calls it the grand illusion—that returns reported by mutual funds aren’t actually earned by fund investors. He says over a 25 year period ending in 2005, the average mutual fund investor earned 7.3 percent compared to 12.3 percent for the benchmark. Diversification aided by solid financial advice can help insulate a retirement plan from that kind of lackluster performance. Wisdom and Knowledge Can those building their fortunes make decisions without an advisor? Of course. But advisors offer more than just tips and suggestions—they also offer support when an investor’s feet need to be held to the fire. “There’s a handful of decisions that will shape your future, and sometimes they are painful,” Wells says. “But you need to be prepared to stick to them. Tactical changes are easier than strategic changes and can have lifetime impacts. That’s where the expertise from a financial advisor can really come in.” David Archibald would agree. He is a second-generation business owner in the Salt Lake Valley who, along with his brothers, has worked to protect the family’s financial net worth. Years ago, he began a relationship with his financial advisor, who told him to “make a plan and stick with it. No knee-jerk reactions, and that’s what we’ve stayed with for almost 20 years.” Archibald has diversified his portfolio into a combination of stocks, bonds and local investment properties. Each of those strategies has seen their share of challenges and pitfalls. He’s been patient and watched the horizon of his strategies smooth out over time. “I’m a smart guy, but I couldn’t have made most of these decisions myself,” he says. “I have a business to run. That’s why I’ve turned to my financial guy whose business is to protect my money.” “We’ve certainly seen a large emergence of opportunities for investors to do things on their own or on the web,” says John Holmgren, a financial advisor with Ameriprise Financial. “Much of this information and these tools are free and available, but you get the advice you either pay for or don’t pay for. As an advisor, I focus on working with those not interested in the nuts and bolts themselves, but who want more guidance. And I don’t focus on headlines, as they are not what we launch our plan on.” In all cases, wealth managers want to know what their clients are looking for in a plan—their goals, their timetables depending on when they start a plan, and their tolerance for risk. As people get older, Bird says, their goals crystallize and become clearer. “Some say they have children they want educated, and some simply want a plan that they can live on after retirement. Some want to pass on a legacy, so we can help them with how that legacy will look,” he says. “We function like a physical doctor as well as a pharmacist,” Holmgren says. “Some come to us with needs that are pretty straightforward—getting started, setting things up. So like a pharmacist, we can help them with prescribed things. We can also diagnose situations like a physician, put them on a financial treadmill to see their strengths and quantify their goals in today’s dollars. Many times we’ll reaffirm things they are already doing, as well as offer some suggestions.” “It’s easy to talk about headlines,” Bird says, “but the real question is, ‘Am I going to be financially OK?’ It’s important to look at what we can control, things we can influence and recognize things we can’t. Our investment strategy is that we’re going to create a plan to follow consistently over time. What’s important to a client about their retirement—traveling 30 weeks a year, or living on a $50,000 annual budget. We look at what’s feasible for them and then determine how to do it.” Roadmap for the Future Another common message from these advisors—Wall Street is not our friend. “Wall Street is about making money for Wall Street,” Bird says. “They are fabulous at creating products that meet the emotional need of the moment. They are not about making money for their clients. It’s certain the returns will not be what the brochures from Wall Street suggest.” “Whenever somebody’s making a lot of money, people are attracted to it and others want to get on board,” Peterson adds. “Sooner or later, there will likely be too many people on board, and that ship is going to sink.” Certainly that advice would have come in handy during the Dutch tulip mania of the 17th century. One of Peterson’s favorite reads is Edward Chancellor’s 1999 book Devil Take the Hindmost: A History of Financial Speculation. It tells the story of how the price of a single tulip bulb skyrocketed in February 1637 in Holland to an amount more than 10 times the average income of a skilled craftsman. It’s generally considered the first recorded speculative economic bubble in history, and it resulted in catastrophic losses by many Dutch citizens who sold everything to get into the tulip market, then fell victim to the mania when prices suddenly collapsed. “Wealth is often kept through concentration, but best kept through diversification,” Wells says. “That’s where strategy really comes into play. An important aspect is the percentage of a client’s investment portfolio he or she is willing to accept volatility with. Stable means stable, and we never recommend for them to stretch or yield to anything outside their box. Don’t compromise on stability.” “An advisor’s job is to give the client clarity,” Bird says. “We show them that if they stay on this path, these are the likely positive and/or negative outcomes. This is where wisdom and knowledge come into play, because everyone’s situation is going to be a bit different.” “It’d be nice if we could put information into a computer and have a formula that it prints out, but that doesn’t happen,” Wells says. “Every one and every situation is unique. What we can do is determine their desired destination and help them with a roadmap to get there.” Holmgren says “our profession is always managing expectations…the rate of return is based on what your needs are as an investor. If you have a strategy you’ve developed, then stay focused and not be so quick to make changes, knowing that you’re always making two decisions—when to get in and when to get out. The mind and the heart are two things that always seem at odds with each other. Sometimes, for us as advisors, it’s simply a matter of laying things out for folks and letting them make a decision.”
Utah Business Social
UB Events View All
Best Companies to Work For 2015Utah Business Event
Dec 10, 2015
Utah Business magazine is thrilled to announce the 2015 Best Companies to Work for Event! This y...
Community Events View All
Empowering Self and Others: Become and Awakener
Dec 1, 2015
Uncover the secrets of empowerment. Whether you are a parent, a teacher or a Coach, you’ll find ...
Secrets to Financing your Business
Dec 1, 2015
Register:  |  90 South 400 West, Ste 650 Salt Lake City, Utah 84101   |  (801) 568-0114

Advertise with Utah Business

Submit an Event

* indicates required information
* Event Name:
Price (general):
Website (if applicable):
Coordinator's Name:
Coordinator's Email:
Coordinator's Phone:
Venue Name:
Venue Address:
Venue City:
Venue Zip:
Event Capacity:
* Event Description: