What We Can Learn From Soccer Tots:

Published on 8:13 am by in Blog


One of the greatest analogies I’ve heard was told to me by a Fidelity wholesaler named Michael (The Wolf Pack) Pack.  He described amateur investors as being like small children playing soccer.  When the ball squirts into the corner of the playing field, every kid chases it and no real plays ever develop.

Amateur investors are a lot like that.  They get a “hot tip” or read about a trend in some financial magazine and want to get in on the action.  We all know that if you’re hearing about it, it’s too late.

Compare this with professional soccer players that are spread out all over the field.  When the ball flies from one end of the field to the other, there might only be one defender between the person with the ball and the goalie.  Much easier to score this way wouldn’t you think?

Our job is similar to that of a soccer coach.  Advise our clients to hold their position and be there when the ball gets there.

Consider the following statistics measured over the last 20 years in a study by the research firm, Dalbar, Inc:

S&P 500 Avg. Return = 12.2%
Inflation = 3.14%
Average Investor = 2.57%

My feeling is that this has a great deal to do with investors chasing returns.  Take a look at the Ibbotson charts for the last 20 years and you’ll see that after almost every year the leading index falls to the bottom the following year.

Perhaps this is a good way to overcome the common objection to surrender charges in an annuity.  After all, isn’t our job as advisors to protect the investors from themselves?  Aren’t any products that are tied to any sort of market designed to be long-term purchases?

Annuity products help to keep clients focused on the longterm approach by imposing surrender charges.  Mike Dressander of Dressander & Associates makes some good points about annuity surrender charges:

Do you pay the surrender charge if you keep the annuity? No
Do you pay this charge if you die? No
Can you pull money out without penalty? Yes

If you earn 12% the first year in an EIA and it has a 10% surrender charge and the money market that it came from was earning 1%, which account would give you the most money if you cashed out after the first year?

The next time you have a client ask about surrender charges,  put on your coaching hat and have a little talk about soccer.

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