From Worst to First

Here is a list of the worst investment moves I think educators make during their careers. The worst moves are listed first and get better as you move down. Drum roll, please…

  1. Do nothing – meaning don’t invest in anything
  2. Investing in a guaranteed fixed annuity in your 403b – sometimes referred to as a GIC. It basically guarantees that you will lose money after the hefty fees, commissions, and inflation.
  3. Doing it yourself and not knowing what you are doing. I used to think choosing a variable annuity was worse but I have been discovering many people choosing overly conservative investments which of course leads to poor investment performance.
  4. Investing in a variable annuity. Usually, you are invested mostly in stocks but the fees and commissions are a big drag on your investment returns.
  5. Doing it yourself and picking a retirement date target fund. I think these can be too conservative, especially if you’re an educator with a pension in your future.
  6. Use a financial advisor and pay 5.75% commissions on your paycheck contributions and the fees in the actual mutual funds are too high.
  7. Do it yourself and know what you are doing. This involves a lot of research and massive amounts of reading. You must truly love finance in order to get to this level. I was there while I was a teacher but I must admit there is a lot to learn and I am still always learning. This is not simply picking a lifecycle fund or a target-date mutual fund
  8. Probably the best for most people is to have a Financial Advisor that you trust and is not overcharging you with fees and commissions. Having a trusted advisor who acts as a fiduciary will save you a tremendous amount of time trying to figure out how to invest properly and generate good investment returns based on your risk profile and time horizon. What the DIY people don’t realize is that investment professionals have access to tools that they don’t that can add about 3%/year to the average returns. Even John Bogle the founder of Vanguard was invested in actively managed funds!