The AARP and Me — Like Two Peas in a Pod
By: Sam Swift, CFA, CFP®
I thought I’d share a quick article with you all heading into the July 4th weekend: Does Economic News Drive the Stock Market?
The article itself is great and has a nice headline suggestion to sum up most daily stock market performance: Stocks Surge, Reasons Unknown; May Be Nothing More Than the Random Fluctuation of a Complex System. That’s not the reason I link to it, however. In fact, many others (including myself) have written similar articles bemoaning short-term (especially daily!) market movements. What I found interesting is that I write for an audience of young professionals, yet this article repeating the same concepts appears on the AARP website.
The financial industry has spun the myth that it’s all about choosing the right product for your situation. They do it with age and they’ve certainly done it with wealth. Mutual funds initially started out as a good way for the “small, unsophisticated investor” to invest. Then, when people eventually realized that mutual funds were pretty great for everyone, it was index funds that became good for the “small, unsophisticated investor”. The implication, of course, was that a wealthy person would be crazy to just put their money into index funds, especially when there were so many complex (code word for expensive) products out there that were much better suited for those that “knew better” and had more money.
The reality is that good investment advice actually does apply across the spectrum. The difference, of course, is that someone reading AARP is likely in a very different situation than someone reading this blog and that’s where the real planning comes in. Concerning your investments, asset allocation is the most important determinant to get you from your current situation to your desired future. It’s likely that a retiree and a young professional will have very different allocations, but there’s no reason the components that make up the different asset classes should look very different.