By Dr. Paul Price of Market Shadows  

Those of us over age 60 often receive invitations to nice local restaurants for a free meal and a ‘nothing will be sold’ seminar. The food arrives after the 60 – 90 minute presentation–the requirement is that you sit through the seminar.               

In most cases the real intent is to get seniors to come into financial planners’ offices for a consultation. I sometimes attend these events to learn what people who speak with me are being exposed to.

In almost every case they are being pitched on the evils of stocks and the virtues of annuities. Another popular topic covers the complex ways to structure social security claims in order to maximize benefits. Some of the presenters are lackluster. Many have brilliant public speaking skills.

I attended one of these sessions on March 9, 2009, the exact day the stock market hit its cyclical 2008-09 bottom. Attendees that owned mutual funds, 401ks and stock portfolios were shell-shocked and vulnerable. The 2008-09 carnage had left equities showing very negative 5-year total returns.

The speaker told attendees they should consult with him to ‘Crash-Proof’ their portfolio. He urged them to get their money out of volatile stocks and into safe, secure products that did not fluctuate with the market. I suspect that many of the people responded enthusiastically to the idea of cashing out–right at the worst possible moment.

Even after a big recovery, financial planners continue to use scare tactics to get retirees to abandon equities. They love to show charts like these 5-year trailing numbers (as of August 31, 2013).

Once we roll past October, will those same speakers be prone to highlight numbers starting with November 2008? When we get through February 2014, will these presenters be showing the 5-year results beginning from the bottom in 2009? I’d bet they won’t.

Stoking fear worked in 2009 to motivate unsophisticated people to switch their life-savings from equities to fixed annuities at unattractive, but guaranteed rates. 

Those who took the slickly served advice may have discovered in the end that the free meal, with its delicious chocolate dessert, ended up costing them half a million or more in retirement compared to what they would have made by leaving things alone.

Note: Most alternative strategies that were touted near 2008’s market bottom incurred large fees while showing poor results.

Investors are best served sticking with time-tested techniques that have proven themselves over the long haul.