Charles Payne’s book title, Be Smart, Act Fast, Get Rich: Your Game Plan for Getting It Right in the Stock Market, is attention-grabbing. It is also a useful reminder: financial entertainment is not the same thing as personalized financial advice.

A book, television segment or newsletter may legally offer broad, impersonal investment commentary. That does not make the recommendation appropriate for you.

Legal is not the same as suitable. And a confident stock tip is not a retirement plan.

The person recommending the stock does not know you

A television personality does not know:

• How much you can afford to lose.
• Whether you are 35 and accumulating wealth or 70 and withdrawing it.
• How concentrated your portfolio already is.
• Whether the purchase could create unnecessary taxes.
• How much income your investments must provide.
• Whether you can withstand a 30%, 50% or even 80% decline.

The commentator is speaking to an audience—not advising you.

The same stock might be a reasonable speculation for one investor and a retirement-threatening mistake for another.

A stock tip is only half a decision

Books, television programs and newsletters are often very good at telling investors what to buy. They are usually far less helpful about what matters next:

• How much should you buy?
• Which account should hold it?
• What should you sell to fund it?
• When does the investment become overvalued?
• What would prove the investment thesis wrong?
• When should you take a profit?
• When should you accept a loss?
• How does the position fit with everything else you own?

Buying is easy. Managing the position is where discipline and risk management matter.

A recommendation without position sizing, an exit strategy and portfolio context is not an investment plan. It is an idea—and sometimes an expensive one.

The incentives are different

Television is rewarded for attention. Publishers are rewarded for book sales and subscriptions. Financial personalities build audiences by being bold, confident and memorable.

“Maintain a diversified portfolio appropriate for your age, income needs, tax situation and tolerance for loss” may be sound advice. It is not a very compelling headline.

“Act fast and get rich” is.

The more dramatic the prediction, the more attention it receives. But excitement and sound retirement planning rarely belong in the same sentence.

When the recommendation succeeds, it can be replayed and celebrated. When it fails, you absorb the loss. There may be no follow-up call, no review of your financial plan and no professional sitting across from you to explain what happened.

A publisher exclusion is not a fiduciary relationship

Federal law generally permits bona fide publishers to provide regular, impersonal investment commentary without registering as investment advisers. The SEC describes this exclusion as applying to commentary that is general, genuine and not tailored to a particular person’s portfolio. Read the SEC’s explanation.

That legal protection does not make a broadcaster or author your fiduciary.

The commentator is not responsible for monitoring your account, coordinating the recommendation with your retirement-income plan or placing your interests ahead of a television program, publishing business or subscription service.

A disclaimer cannot make an unsuitable investment suitable. It simply reminds you that the consequences are yours.

Public recommendations deserve scrutiny

In 1999, the SEC alleged that Charles Payne and Wall Street Strategies recommended a stock without disclosing that Payne had received payments from the company to promote it. Payne settled the matter without admitting or denying the allegations, consented to an injunction and paid a $25,000 civil penalty. Read the SEC litigation release.

That matter occurred many years ago and does not establish that his current commentary or books violate securities laws. It does, however, demonstrate why disclosure matters—and why investors should never confuse a confident public recommendation with independent, personalized fiduciary advice.

The SEC continues to warn investors not to make investment decisions solely on public stock tips and identifies promises of unusually high returns as a classic warning sign. Read the SEC’s investor alert.

Retirees cannot afford to treat investing like entertainment

A younger investor may have decades of employment income to recover from a major mistake. A retiree withdrawing money from a declining portfolio may not.

A significant loss early in retirement can force an investor to sell additional assets at depressed prices to fund living expenses. That combination of losses and withdrawals can permanently damage a portfolio—even if the market eventually recovers.

That is why retirement investing should not begin with, “Which stock should I buy?”

It should begin with:

• How much income will the household need?
• Which assets should fund that income?
• How much risk can the plan withstand?
• What reserves are needed during a market decline?
• How will taxes, Social Security, Medicare and required distributions affect the strategy?
• What must the portfolio accomplish for the rest of the investor’s life?

Only then should individual investments be selected.

Before following any public stock recommendation

Ask yourself:

1. Does this person know my complete financial circumstances?
2. Is the recommendation appropriate for my stage of life?
3. What financial interest does the speaker have?
4. What percentage of my portfolio would be at risk?
5. What is my exit strategy if the recommendation is wrong?
6. Can I explain how the company makes money and what could damage it?
7. Would I still buy it if I had never seen the segment or advertisement?

If you cannot answer those questions, you are not investing from a plan. You are borrowing someone else’s conviction and risking your own money.

Plan first. Invest second.

At CochranMickels Retirement Specialists, we believe investments should serve the retirement plan—not replace it.

No book, television personality or list of “hot stocks” knows your income needs, tax situation, family responsibilities and tolerance for loss. Building lasting retirement security may be less exciting than a promise to “get rich,” but it is far more important.

Your retirement deserves more than a stock tip.

It deserves an integrated strategy designed around YOUR Retirement on YOUR Terms. 256-417-4870

 

This article is provided for educational and informational purposes only and is not intended to provide investment, tax or legal advice or to serve as a recommendation to buy or sell any security. The information presented is based on sources believed to be reliable but is not guaranteed as to accuracy or completeness. References to any book, program, commentator or individual are not intended to imply that the person or entity is currently violating any law or regulation. CochranMickels Retirement Specialists is not affiliated with, endorsed by or sponsored by any referenced person or organization. Investments involve risk, including possible loss of principal. Past performance does not guarantee future results. Before making investment decisions, consult your financial, tax and legal professionals regarding your specific circumstances.  Mike Mickels is the President and Chief Compliance Officer of CochranMickels Retirement Specialists, LLC, and an avid sporting clay competitor. Investment advisory services are offered through CochranMickels Retirement Specialists, LLC., a state-registered investment advisor firm domiciled in Alabama and also registered in Florida. Our firm provides personalized planning and investment services to individuals approaching and in retirement.