Nightly Business Report
- Peter Mallouk, who’s been one of the top-ranked US wealth managers in recent years, disagrees with the basic philosophy underpinning most retirement investing.
- Mallouk — who’s president of $39 billion Creative Planning, the nation’s biggest wealth-management firm — has topped Barron’s independent wealth advisor rankings four times since 2013. He’s also one of the top 20 wealth managers in the US, according to Forbes.
- He says investors should figure out what they’re going to need in retirement and invest to meet those requirements. Their age and risk tolerance shouldn’t have anything to do with it.
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One of the top-rated wealth managers in the US says a lot of his peers and investors in general are getting retirement planning completely wrong.
"They invest based on their tolerance for risk … or they invest based on their age," said Peter Mallouk, president of $39 billion Creative Planning, the nation’s largest wealth-management firm. "These are very, very big mistakes."
Based on Mallouk’s track record, he’s someone worth paying attention to. Barron’s named Mallouk the no. 1 independent wealth advisor in the country from 2013 to 2015 and in 2017, and it named his company as the no. 1 independent wealth management firm in 2017. Meanwhile, Forbes counts him among its top 20 wealth managers.
Mallouk describes his typical client as "the millionaire next door." But his ideas can inform people of more modest means. The five sections below outline how Mallouk is investing, and how he advises potential clients to think about several major issues.
Each section ultimately amounts to a recommendation for investors of all types — and of all net worths.
(1) Know your needs
Mallouk rejects the idea that your age — or a general concept of risk tolerance — should shape your retirement plans. Instead, he recommends finding an advisor who will assess your needs so you can make choices that support that goal.
He adds that the traditional approach jeopardizes the financial security of retirees.
"Most older people are under-allocated to stocks because when they follow these age-based or risk-based formulas, they get underweighted to stocks," Mallouk told Business Insider by phone. "But retirement isn’t the destination, it’s the beginning. They still need that portfolio to last for decades."
But that doesn’t mean he thinks risk is irrelevant. He warns prospective investors that seeking the greatest possible return isn’t always the right move, especially if they’re getting only a slightly larger return while taking much bigger chances.
"People should be looking at ‘what are my needs and what’s the best way to accomplish that?’ And ‘how do I get risk-adjusted return after cost and after taxes,’" he said.
(2) Think long term
Mallouk says he doesn’t put client money into cryptocurrencies like bitcoin because there is simply no way to tell which digital currencies will survive or gain value over time.
"I think ultimately there will be a couple cryptocurrencies that do prevail," Mallouk said. "But betting on, out of the thousands, which ones they’re going to be is speculation, not investing."
Mallouk takes a similar approach when it comes to investing in cannabis stocks, which are growing in popularity all the time.
"There will be a few winners, but there are going to be more losers than winners," he said. "What you’ll eventually see is, the survivors are going to be owned by America’s biggest companies, and we own those companies."
(3) Start planning now
If you start planning for retirement now, Mallouk says, you may find it’s not that hard to set aside the money you’ll need to reach your goals. But you won’t know that until you draw up your goals and get started.
"I really don’t think people get how much they need to set aside to accomplish what they want," he said.
(4) Go global
International stocks have been struggling for years, and dark clouds like Brexit and the trade war with China have left some investors wondering if they should just focus on US stocks. Others wonder if those stocks are set for a giant rally they should be playing.
Mallouk stresses patience to both groups, saying the diversification is important.
"Over the very long run, [large international companies] work themselves to about the same place big US companies do, and they get there in very different ways," he said. "If you look at 2000 to 2010, they dramatically outperformed the US over a 10 year period, and over the last five years it’s been the opposite."
But there are two areas in international investing that he’s avoiding for now: international bonds, and early-stage "frontier" markets. Mallouk said he sees both as too risky right now. He prefers investing in developed markets and getting that exposure through stocks.
(5) Be careful in bonds
Mallouk says he’s a cautious bond investor. He’s removed his clients’ money from high-yield bonds over the last few months for a combination of reasons.
He says the credit quality of most types of bonds has slipped. And at this point, he doesn’t think riskier "junk" bonds are offering enough extra return to make the gamble worthwhile.
"You’re getting a little bit extra return right now, but the risk that’s being taken is wildly disproportionate," Mallouk said.
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