If you’re considering the FRS investment plan, or are in the investment plan, you no doubt have put some thought into the risks that entails. But there’s one risk especially that is often overlooked—and in my opinion, it’s the biggest one.

So let’s talk about some of the risks that are unique to the investment plan that you don’t necessarily have to be as concerned about with the pension plan. The most obvious, and the risk everybody immediately recognizes, is market risk. The risk that, for one example, just as you are about to retire, the market takes a hit, and you find yourself either delaying your retirement or leaving with something less than you had maybe just a few months earlier.

Not the best way to start your retirement. So maybe as you’re planning your retirement, you might want to consider factoring that in and building your retirement model based on that actually happening. If it doesn’t derail your plan, it’ll be comforting knowing that your plan and your investment strategy is strong enough to overcome it.

Another risk we have to be concerned with is that you pick the wrong investments. What if one of the companies whose stock you bought inside your investment plan suddenly drops significantly in value or even goes out of business? Of course, if you are using the funds FRS offers you, you’ve eliminated most or all of that risk by diversifying. But we meet a lot of investment plan participants who have opened the self-directed account and bought individual stock positions over there.

An investment strategy that doesn’t rely on picking the right stocks over the wrong stocks is the answer to that risk. Rather than looking at the market as a choice of good stocks to buy versus bad stocks to buy, we’ve found that embracing a strategy that focuses on asset classes that have strong historical evidence of delivering whole-market returns makes for a much more comfortable and favorable investment experience that, additionally, gives us the confidence we’ll achieve our retirement goals.

But there’s a risk out there that I honestly believe is much more significant and could potentially do much more damage than picking the wrong investments or the risk markets will drop. And that risk could be your own behavior.

In every case that we hear about an investment plan that went awry, the reasons we see are always bad behavior. More specifically, those bad behaviors are where the investor didn’t diversify their account or lacked the understanding of how markets work, which led them to poor decisions around their investments. We also see investment plan participants take too much out of their plan, in essence not treating their plan like a pension that needs to provide a lifelong stream of income. Sometimes temptation just gets the better of people, and that boat or those first-class plane tickets mean more to them than making sure their account lasts longer than they do.

What we’ve learned to be absolutely true, and something that was a bit surprising to me as a younger advisor, was that the easiest part of this job, of being a wealth manager, is the investment part. Now, some investment advisors are obviously better at it than others. But the truth is, we’ve got more data than you can imagine that tells us what we need to do to be successful. Believe me, that part is actually pretty easy. The hard part is managing the behaviors of the wonderful people we call clients. Because in our experience, it’s not the markets and it’s not the investments that get us into trouble. What gets people in trouble is not understanding the rules you have to follow and not treating your plan with the respect it needs. That’s what gets folks into trouble.

Now lest you take away from this the idea that we’re only recommending you take the pension plan and avoid the investment plan, that’s not at all what I’m saying. What I’m saying is the investment plan still may be the best solution for you based on what your goals are, but understanding and identifying the risks up front is critical so you are going in with a better understanding of what you should and shouldn’t do with your plan. A strong, seasoned, and competent advisor can help.

Let us know if you’d like to have a discussion on which plan—the pension plan or the investment plan, both of which have risks—is right for you. Thanks for watching. Stay safe!