In golf the low score wins. The player with the least strokes per round is the winner. If you hit a bad shot into the woods or the water hazards (ponds and streams) you can get a mulligan. You can have a second shot and not have a penalty.
However, according to the rules of golf, a mulligan is not allowed. With that said, if the others in your group agree, you only get one mulligan per round of golf. A mulligan is a free do-over.
There is no mulligan with your Retirement Plan.
I know more than a few of you, like me, are on The Back Nine – Practical Steps for Financial Retirement.
Remember, there is no free do-over here. How can you avoid wishing you had a retirement plan mulligan? Here are three instances where investors are looking for the proverbial mulligan.
Why You Shouldn’t Chase the Latest Investment Fad
Chasing the Latest Investment Fad is as old as dirt. A particular industry gets hot and some companies within that industry are on fire. This naturally attracts more investment capital. Next, the financial returns then attract more media attention, which, you guessed it, attracts even more investors.
This was particularly highlighted in the technology sector leading up to the year 2000. Go into the barbershop and CNBC was blaring on the TV. Take your car to the garage to get it fixed and the mechanic was spending more time monitoring his tech stocks online than he was with his head under the hood of your car. Head out to the neighborhood cocktail party on Friday evening and the conversation was all about the big winners in technology stocks your neighbors had in their investment portfolio.
It is odd how they never had any losers, or if they did, it is funny they never mentioned them.
The technology heavy NASDAQ Index closed at an all-time high on March 10, 2000, at 5,048. After the year 2000, do you think any of those investors were looking for a mulligan? Oh yes, big time. Did they get it? No, not so much.
On June 8, 2015, the NASDAQ finally got back to its high from March 2000.
That is fifteen long years to get back to the prior all-time high.
The dot-com bubble recently ‘celebrated’ its twenty-five-year anniversary. Nothing to celebrate here. However, clearly time for some reflection. The amount money being put into artificial intelligence (AI) is staggering and, well, continuing to increase.
However, cracks are forming here. DeepSeek, a Chinese company, (surprise, surprise) is producing highly competitive AI tools at a fraction of what U.S. companies have invested and are projecting to invest. We will see where this goes. The Latin phrase is, ‘caveat emptor.’
Remember, there are no do-overs with investing.
Investing Too Much Into One Company
This can easily happen to employees that work for large companies. They get their paycheck, health care, and 401(k) plan provided by their employer. Oh, I forgot, they also got some sweet stock options from the company. On the face of it, this looks great. First, get your paycheck direct deposited twice a month. Next, have modest deductibles and co-pays for your health insurance when you need to go to the doctors. Then fund your 401(k) plan every month. Finally, stick around long enough for your 401(k) plan employer match and stock options to vest.
As they say, “Life is good.”
Or is it? Dig a little deeper and you can see the issues that may arise. The company’s 401(k) plan employer match is made in company stock. Because you work there, you think you know the company, so you decide to put all your 401(k) plan contributions into the company stock.
Now you have your income, health care, 401(k) plan and stock options all tied up in one company. This is concentration risk. Concentrating so much financially into one company. Which is the opposite of diversification. Does this look like a good idea to you? I did not think so. Lose your job and you have issues. If the stock tanks you have issues.
If you lose your job and the stock tanks, you really have issues.
Not Having Adequate Insurance
No one likes to talk about insurance, much less buy more of it. This is very understandable. However, insurance serves an important function. By having insurance and paying the premiums, you are sharing the risks of loss with the insurance company.
Investors with dependents should consider life insurance. Dependents could be a spouse, minor children, or other family members. The objective here is simple. If you pass away, your dependents can use the death benefit from the life insurance policy to keep them in a similar lifestyle they had while you were alive.
You do not want your surviving spouse to be asking to friends and family to Make Your Checks Payable to the Smith Family Education Fund…
However, based on my observations, not everyone plans to die. These folks have dependents, but no life insurance.
Remember, the odds of passing away are 100%.
Younger folks are not so concerned with passing away. OK, that is fine. They should, however, be concerned with becoming disabled. If you get injured, you might not be able to work. If you cannot work, paying your bills becomes problematic.
You cannot count on Social Security Disability Insurance (SSDI) either. To be eligible to collect SSDI is difficult, and the benefits are modest.
Younger investors need to take a hard look at getting disability insurance. These policies will pay about 60% if you become disabled. For younger folks, the odds of becoming disabled are significantly higher than passing away. The good news is about 41% of employers offer long-term disability to their employees. 1)
Property and casualty insurance is necessary for all investors. Car and homeowner’s policies are essential. When buying a car or homeowners insurance you can pick the coverage. However, many states regulate the minimum coverage for car insurance for bodily injury and property damage. Also, for homeowners with a mortgage, banks and lending institutions will require a certain minimum amount of coverage.
Beyond that, the insured decides the amount of coverage and the deductible they want. For example, someone may decide to get $100,000 of liability However, when considering the potential liability and lawsuits, the amount is not adequate.
This is why everyone should consider an umbrella policy. These polices have exceptionally high deductibles of $300,000 to $500,000 before the umbrella coverage ‘kicks-in.’ These policies will require insurance coverage on your car and homeowners’ policies up to the deductible.
Umbrella policies may also cover potential claims not covered by homeowners including slander, libel, and defamation of character.
It is common that an umbrella policy can only be obtained from the same insurance company that provides your car and homeowners insurance. This is so that the insurance company understands all the risks it is covering.
Additionally, this is important so that there are no gaps in the coverage. Consult with your insurance agent to see that you are adequately protected.
Tee it up
We cannot keep you out of the sand traps or water hazards. I am sorry but you are on your own with that. You may need to take some lessons from the golf pro at the golf course. Spending time at the driving range helps too.
Golf, however, is just a game. OK, you may have a financial stake with the others in your foursome. Hopefully, these are not big stakes, and it is just a round or two of drinks in the clubhouse after the match.
Either way, your retirement planning is not a game. Be prepared to get through your round without a mulligan. You want to be able to enjoy yourself on the 19th hole.
Action Item
You only get a mulligan in golf. There are no retirement do-overs. Avoid chasing the latest investment fad, investing too much into one company and not having adequate insurance.
If you need a financial caddie to help with your No Mulligan for Retirement – Easy Ways to Get It Right the First Time, give us a call at (860) 645-1515 or e-mail Thomas.scanlon@raymondjames.com.
This is original content prepared by Manchester, CT Financial Advisor, Thomas F. Scanlon, CFP®, CPA.
1)Simplyinsurance.com – January 11, 2025
The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the forgoing material is accurate or complete. Any opinions are those of Thomas F. Scanlon, CFP®, CPA, and not those necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.
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