There’s nothing wrong with selling, but there’s a right and a wrong way to sell. Let me explain.

Logic vs. Emotions

I know that I’m a smart guy. In fact, I’m so smart, that I know you don’t give a damn how smart I am. Make sense? Financial Advisors have long known that logic doesn’t sell, emotions do. Don’t believe me? Read the following:

Argument A: If you don’t follow my advice, you expose yourself to significant financial volatility, due to macroeconomic and global financial issues, specifically with regards to the fluctuations in relative valuations of the dollar versus foreign currencies. Given that assumed level of volatility, the portfolio value that represents minus two standard deviations from the mean would be an ending value approximately 44% lower than your current projected need at the estimated date of retirement.

Argument B: If you don’t follow my advice, there’s a good chance that you’ll go broke and have to move back into your kid’s basement. All your dreams will be flushed down the toilet and you’ll be a burden to your family until you finally, thankfully kick the bucket.

Both of these arguments are saying the exact same thing. But which of these arguments is more compelling? Well, unless you are an architect, computer programmer, or other hyper-analytical type, you answered “B.” In my experience, 90% of people are more motivated by emotional arguments than logical ones.

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On the subject of qualified plans (401k plans, traditional IRAs, and similar accounts), I am in complete disagreement with EVERY AUTHOR ON THE MOST WANTED LIST.
Garrett Gunderson, author of Killing Sacred Cows is the most blatant (and incidentally, ridiculous) with his attack on qualified plan liquidity, saying:

“The money is tied up with penalties attached for early withdrawal. Although there are a few technicalities that allow penalty-free withdrawals, the restrictions are so numerous that very few know how to get around them.”

To this, I have three responses:
First, qualified plan money is tied up for good reason. Namely, individuals suck at saving and investing for retirement. It doesn’t take a genius to understand that if a penalty is attached for early withdrawal, people will tend to leave that money alone, saving it for its original intention – retirement income. If you take money out of a retirement plan to buy a fancy car or go on vacation, shame on you. That behavior invariably leads dependence on social welfare systems, which means that responsible taxpayers end up covering your stupidity. Certainly, a qualified plan isn’t the place to save your emergency fund, or your rainy day shopping spree fund either. Duh.
Second, If you do get jammed up and need access to your money, you absolutely can get it. Penalty-free. And easily, too. Here are some of the “completely esoteric, indecipherable, technical, and highly restricted” reason that Uncle Sam will let you take your money out of a qualified plan, including the “numerous restrictions” Mr. Gunderson alluded to. Continue reading »