One of the most pivotal lessons in my career came from not understanding the difference between working and retirement. My client had a very successful business which he had built over many decades. He sold it in his late 50s and retired well, multiple seven figures in the bank.
I had inherited this client from a retired colleague and treated him as if he was a new client, going through all the right procedures and asking him to complete the risk questionnaire so we could position his investments correctly. He had been invested before, but never large amounts – his business had been his largest asset and now that was turned into cash.
Now this guy was an entrepreneur, and at the time, I equated that with risk-taking. Also, his answers to the risk questionnaire seemed to bear this out – he came out balanced to moderately adventurous, call it a 6-7 out of 10.
And so, we invested £1million of his multi-million pay-out from the business sale. It was an immaculately constructed portfolio, inside the right tax wrapper for his circumstances. This was early 2007. Then the Great Financial Crisis hit and he watched the value of his portfolio fall.
Not a great deal at first, and the value never declined more than 12% from the amount he invested. But by the autumn of 2008, he was on the phone for an hour every day, seeking constant reassurance, which I attempted to give him.
In the end he cracked and sold out of his investment placing the money in to cash, some of which went it one of the Icelandic banks. Which eventually failed, taking his money with it.
Now in the end he got it all back, but the lesson I learned was that the man who had built a business certainly wasn’t a risk-taker. For him, who had always been in control of the business he had built, to suddenly not having any control over the direction of markets, was too much.
I learned how to be much better at talking about risk with clients I build portfolios for, and much better at talking clients through the potential implications of their decisions. For you, you need to understand the implications of any decisions you make at retirement, and particularly investment decisions.
Also, you need to understand the difference between working and retiring. Suddenly, you’re retired, you’re not earning any more or building wealth – you’re spending it. If you’re doing your job right, you should be reducing the value of your investments by means of spending and enjoying it. That does require a completely different viewpoint from a wealth-building mentally.
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