Can You Manage Your Own Retirement Portfolio?

Years ago, Barry Ritholtz wrote an article about something he called “Competency Transference,” which is when someone successful in one field decides to give another field a try, but fails miserably. The most famous example is when Michael Jordan decided to leave basketball to try his athletic prowess at baseball, only to end his career as a .200 minor league hitter.


He goes on to explain how doctors – who have had immense success in a field that involves diagnosing disease and savings lives – believe that they can beat the stock market as well. In reality, however, their results aren’t much better than the fate of Michael Jordan with a baseball bat in his hand.


That being said, there have been several multi-sport athletes over the years, whether it be in football, baseball, wrestling, or basketball. For those of you old enough to remember, “Bo” really did know both football and baseball, but I don’t know that his unique ability made him qualified to perform triple-bypass surgery.


Don’t get me wrong… I’m not trying to draw a direct correlation between the medical training of physicians and the physical ability of professional athletes. As someone who personally spent most of his undergraduate work studying biology, chemistry, microbiology, zoology, biochemistry, advanced calculus, and organic chemistry before walking away from a potential career in medicine only to end up starting a retirement planning and investment management firm, I know a little bit of what it takes to “make it” as a doctor.


However, physicians spend an additional 4 years of graduate work in medical school with a minimum of two years in residency, followed by an additional 1-3 years (or more) in fellowship as they chase their dream of say… becoming a trauma surgeon (which was my original plan).


In my case, I changed gears my senior year at The Ohio State University and chose instead to become a “financial surgeon,” but no matter how much education I’ve obtained, designations acquired, or tenure in the field, I’d (personally) never choose to “give it a go” with surgery on myself or my family. Granted, our finances are probably 2nd in line behind our health in terms of life priorities, but still… if you’re a highly-educated, analytical and clearly intelligent business owners, engineer, architect, or physician, does that intelligence transcend directly into the world of retirement planning and investment management?


Well, I say “Maybe.”


I’d personally never attempt to power-up and takeoff in a F-22 Raptor (as much as it’s a personal dream of mine to get a ride in one!). I’m only 5’ 8” and 41 years of age, so I know that I’d get laughed out of an arena if I attempted a shot at pro basketball. Aside from helping individuals, couples, and business owners with their retirement planning and investment management, I really enjoy writing, so I put together all my own content (like the article you’re reading right now… if you made it this far, anyway!).


However… I’ve never bought or sold my own house, I’ve never priced out my own insurance (whether it be for my home, auto, or business), I have a company that handles my payroll, BWC, and health insurance for me so that I don’t have to worry about it, I’ve had several broken bones and injuries over the years and never once tried surgery or anesthesia on myself, and the last time I attempted to do my own tax return was back in 2004, when I first started my company (and it was a big mistake!).


But let me bring us back home again. Is it possible to manage your own retirement portfolio? Sure… I think so. Naturally, it’s a whole lot easier to give yourself credit for a job well done when we’ve just completed almost 12 years where the worst U.S. stock market decline was only -19.9%, but I digress!


On one hand, I do believe it’s possible to handle your retirement planning alone. You just need to have two things:


1. The interest in managing the planning and investment management, and
2. The time to manage it.


It’s been my experience in watching the average investor try to “go it alone,” that if you don’t have the interest, then you won’t invest the time required to be successful. And if you don’t invest the time, then you probably won’t like the results.


While I’m a little biased, I believe it would be much easier to interview financial advisory firms until you’re blue in the face than it would be to assume and act as if managing your hard earned savings is just like doing whatever it is you do for work all day, every day.


If you love retirement planning, estate planning, tax planning, and the stock market, then maybe taking the “DIY” approach is right for you. The only caveat I’d throw into the mix is that again, we’ve been living in what will be a 12+ year uptrend, effective March of 2020, which represents the longest bull market in history (without a -20% or more crash).


For that reason, don’t’ assume that, because you’ve done a good job investing your own money this last 12 years means that you’ve done a good job managing your retirement assets. One of the most dangerous situations one can fall into is when you are subject to a behavioral heuristic or bias. Case in point, doing a “great job” managing your own money in a market that has done nothing but “go up” for 12 years might cause:


Self-Attribution Bias: Which is when you take credit for the positive results and blame bad results on “bad luck.”


Then, Self-Attribution Bias can lead to…


Overconfidence Bias: Where investors put too much weight and confidence on their own abilities, over-estimate returns, and under-estimate risks.


…and this can lead to:


Endowment Bias: Where you value the investments you own more than those you do not. This behavioral/emotional crutch causes investors to place more (artificial) value on investments they own and thus, refuse to sell it for a loss.


And all of this can result from a cognitive bias called…


Confirmation Bias: Where investors tend to look for (i.e. – Google, research, or sign up for newsletters) that confirm their beliefs, rather than searching for information that might contradict their opinion.


No one wants to be wrong – this is a basic human desire! We always want to be right!


But as soon as we realize that retirement planning is less about building a plan that we can believe in and sticking to that plan, the better off we’ll all be. After all a plan, if not stuck to, is completely worthless!


Till next time…

Categories: Adam Koos, CFP®, CMT®, Educational Articles

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