The Right Medicine

I've heard that if you get professional advice on your investments, you should make sure the advisor is putting his money into the same investment vehicles as he's putting you into.

Wrong.

His needs may be different from yours. He may be older than you and less willing to accept the risk. Or younger, and better able to weather volatility. Do you ask your doctor if he's taking the same medication he prescribed for you? Of course not--he wouldn't, unless he coincidentally has the same condition you have.

This seems pretty obvious. But the issue is bigger than that. There are many other situations where something is right in one situation but wrong in another. The financial press, and even some experts, like a black-and-white world. But finance rarely works that way.

Consider annuities. They are extremely popular. According to the annuity trade group NAVA, there are $1.4 trillion in variable annuities. (And that's not even counting fixed annuities.) Although annuities have countless variations, the basic concept is simple: you create one with contributions over time, or with a lump sum, and the insurance company that runs it guarantees you a certain payout. There's usually a life insurance component as well. It can be a useful retirement planning tool.

Still, many advisors are against them, finding them too expensive. Many of them say they can find other solutions for long-term income. Nevertheless, it makes you think: $1.4 trillion is a lot of money for a "useless" product. The point is that if you can accept the cost, annuities can solve some major retirement problems in a very simple way. That's worth it to a lot of people, who don't have the time, patience, or sophistication to explore other options. I know some fine financial planners who recommend annuities to the appropriate investors.

Reverse mortgages also have their supporters and detractors. Consider an 80-something widow living in her home. The mortgage has long been paid off. The house is worth $500,000. Yes, it could be sold to pay for the care she needs, but she doesn't want to leave the house she's been in for 40 years. The reverse mortgage lets her take out some of the equity in cash so she can live her final years in comfort. When she dies, her heirs can sell the house, pay off the reverse mortgage, and inherit whatever is left.

A great solution, and not too complicated. But again, it's an expensive solution. The bank charges a lot for this. I've spoken with advisors who say they have better solutions, but again, I've also spoken with advisors who recommend them.

The answer is to go with what's right for you. There are very few products that are always good or always bad.

It's true, I've never found an advisor who recommends interest-only mortgages. (They may have limited use for certain real estate speculators, but that's it.) And it's hard to find an advisor who condemns all mutual funds in all circumstances. But these are exceptions.

The idea is to find the "medicine" appropriate for your condition. Go with your own thorough research or get advice from a qualified professional. Don't be swayed by "this is always good" or "this is always bad" hype.