4 Types of People saving for retirement: why you should be an active participant with your financial adviser
I think there are 4 types of people when it comes to saving for retirement.
1. The Do-It-Yourselfer: This person loves researching and learning about portfolio construction. They understand proper allocations giving their age and risk thresholds. They actively rebalance their portfolio. They have other savings accounts outside their 401k. (Beware the person that thinks they are in this camp, but is simply trading gold, penny stocks, or isn't diversified at all. That client is basically an "Osterich" because they aren't executing proper risk management and diversification).
2. The Osterich: This person has their head in the sand aka doesn't know what the hell is going on. This person isn't really saving beyond their 401k (or maybe not at all), and they don't really look at the details of the 401k either. They have no idea if their 401k money is in a money market account, earning nothing, or if it's 100% in commodities, or if it's actually in a proper allocation given their time horizon and risk threshold. This is probably the worst position to be in. If you aren't saving, or aren't saving properly, you need to re-evaluate things right now.
3: The Osterich Plus: This person is like the Osterich, but at least they are letting a professional help them. While the Osterich's relationship with their adviser should be trusting, they should still have an idea about what their money is doing and how it is working for them. Osterich's don't -- their head is in the sand. Make an attempt to understand what your money is doing. If your adviser isn't willing to explain it to you, consider getting a difference adviser.
4: The Active Manager: This person is too busy to keep track of the swings of the market, but they do have a more collaborative/understand role in their financial adviser's management of their money. These clients make the attempt to understand where their money is going and why. When their quarterly, bi-yearly, or yearly meetings come around, they understand the portfolio steps that the financial adviser is suggesting. They understand the need for emergency cash funds, access to funds, and protection of their income. They can also explain how and why their money is currently allocated a certain way. They know from working with the adviser, that they are on track to reach retirement savings goals.
In my opinion, #1 and #4 are the only type of clients you should be. Either learn it all and do it yourself, or let someone that does it for a living manage things and have them explain why they are allocating your money a certain way. You HAVE to understand where your money is, and how it is working for you. You HAVE to understand if you are saving enough to reach retirement goals, or if you need to make adjustments.
When I work with people, one of the 5 main goals I go over when I first meet a client is that "they need to know where their money is and what it is doing for them." They don't have to know the Sharpe Ratio of their portfolio (although that would be nice), but I want them to understand: how their portfolio is set up; general principles of portfolio diversification, dollar cost averaging, & valuation; the need for liquid emergency funds; protection of income; and the role taxes play on retirement savings.
Founder of a fee-only, ethical investing firm. We specialize in assisting millennials tired of traditional financial advisers.