The financial planning industry has no shortage of voices offering advice. Unfortunately, they all tend to say the same thing, and it’s not what most investors need or want. In fact, it’s often the exact opposite.
Above all, most investors want security. They want to know that the nest egg they’ve spent a lifetime building will be there when they need it. Somewhere along the way, the financial planning industry lost sight of this and turned the profession into something resembling a Las Vegas casino. The retirement hopes of millions of Americans depend on the stock market rising ever higher. Yes, the same stock market that lost half of its value during the 2007-2009 meltdown and had negative returns after inflation over the past decade.
Erin Botsford is a refreshing voice of prudent common sense, and her new book The Big Retirement Risk should be required reading for every financial planner in America. Clients would be well served if their planner used it as an instruction manual. Individual investors—particularly the 77 million American Baby Boomers fast approaching retirement—will also find its insights valuable.
If there is one dominating focus in Erin Botsford’s financial practice, it is risk. The identification and elimination of risk is something of an obsession for Botsford, and this is not merely an academic exercise for her. As a woman whose early life was marked by tragedy, she has the instincts of a survivor and does a fine job of translating those instincts into actionable financial advice.
The “big retirement risk” that Botsford warns against is running out of money before you run out of time, and Botsford’s perspective here is unique. As a young girl, she witnessed it happen to her own family. With the death of her father at the age of 50, Botsford’s family saw her family’s comfortable middle-class lifestyle reduced to one of poverty and constant worry. Tragedy struck a second time when, as a teenager, Botsford was in an automobile accident in which another motorist died. Faced with mounting legal bills, her family nearly lost their home.
As if these setbacks were not enough, in her early 20s Botsford got firsthand experience with investment risk. After winning a modest windfall as a contestant on Wheel of Fortune, she trusted her newfound wealth to a stockbroker. In short order, the broker lost it all by taking risks that were woefully inappropriate.
Suffice it to say, The Big Retirement Risk is written by an author who knows a thing or two about risk and about the disastrous effects that a lack of planning can have on a family. Proper planning can never totally eliminate risk, but it can give you the means to manage it.
Botsford uses the opening chapters to explode a number of popular myths that dominate the investment profession (the stock market always goes up over time, diversification and asset allocation reduce risk, your net worth determines your lifestyle, etc.) and instead takes an approach that is a little reminiscent of Rich Dad, Poor Dad author Robert Kiyosaki. She focuses on the generation of income, correctly pointing out that “Your net worth has no relevance to your lifestyle if it isn’t in a form that can quickly be converted to cash to provide for your everyday living expenses.”
Well said, Erin.
In later chapters, Botsford outlines the investments and strategies employed in her financial practice, including bonds, real estate, options strategies, and investment products that offer guaranteed returns and focuses on her trademarked Lifestyle-Driven Investing. Her focus throughout is not on “beating the market” or on generating some arbitrary annual return. Instead, her focus is on the preservation of her clients’ lifestyles by guaranteeing sufficient and diverse income streams.
The Big Retirement Risk is a welcome addition to the existing literature on investing and financial planning, and fills in several gaps that sorely needed to be filled. Our compliments to Erin Botsford on a job well done.