I love lessons from unusual sources. For instance, I could write a book about the financial tips I've learned from my dog Scruffy. (Hint: patience, planning and persistence).
Therefore, I especially enjoyed this news item from a Hollywood producer about money.
The release is below:
"Renowned Investment Advisor and Film Producer Explains …
LESSONS HOLLYWOOD CAN TEACH YOU TO AVOID
THE 5 BIGGEST FINANCIAL RETIREMENT MISTAKES
Alan Haft, a nationally renowned Investment Advisor...has perhaps the most unusual background of any financial advisor: for many years, he was partners with famed actor James Woods in a feature film production company, having worked with the likes of Oliver Stone, Kathy Bates, Michael J. Fox, Dolly Parton and many others. In short, from Hollywood he knows first hand how to manage huge investments, maximize returns, minimize losses and parlay that knowledge – and the lessons learned -- to individuals.
Haft explains the 5 biggest mistakes people make when planning for retirement, and often injects a Hollywood twist to help people understand essential investment concepts:
· Thinking it’s too late to start planning.
Once you reach your 50s or 60s, it may seem too late to start investing. But it’s never too late. Thanks to the power of compounding, boosted by the tax-deferred growth offered by individual retirement account (IRAs), 401(k) plans and annuities, it may not take as much time as you think to build up a nest egg.
Morgan Freeman was 50 years old when he landed his breakthrough role in “Street Smart.” “Too late to start planning?” Hardly. Since then he’s accumulated a legendary body of work along with an Oscar for Best Supporting Actor.
· Underestimating your life expectancy.
Almost 20% of workers expect their retirement to last 10 years or less, while an additional 15% expect their retirement to last 11 to 19 years. But according to the 2000 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI), half of the men reaching age 65 have an additional life expectancy of approximately 17 years, while half of the women reaching age 65 have an additional life expectancy of approximately 21 years. Naturally, miscalculating how long you will likely live could be detrimental to your retirement planning.
In Hollywood, underestimating the life expectancy of production is grounds for total disaster. During production, a typical film could easily cost the studio well over a million dollars a day. Underestimate how long it will take for a film to be completed, and you will most likely never work in that town again.
· Miscalculating your savings needs.
Many financial planners will tell you to plan on needing 70% to 85% of your pre-retirement income in your retirement years. But can you really predict how much you’ll need based on general percentages? According to the EBRI survey, only 53% of workers have tried to determine how much money they’ll need to save by the time they retire. But half of the workers who did try to estimate their retirement needs increased their investments or changed their asset allocation as a result of their calculations. That suggests many people are not correctly estimating their retirement needs. Thanks to software and online calculators, it’s easy to do so. A personal favorite: www3.troweprice.com/ric/RIC
In Hollywood, a close friend running production at a major studio confirms most films come within 5% of their estimated budget. A studio simply cannot make major miscalculations, and much more importantly, neither should your retirement.
· Not taking inflation into account.
Many investors, particularly older ones, are uncomfortable with market volatility. As a result, they invest solely in Treasury bills, fixed-rate CDs, and savings accounts. Doing this will eat away at most of their investment return, as these vehicles tend to return less than the current rate of inflation. As you approach retirement — and even in retirement — it’s critical to consider keeping some money in growth investments such as stocks and low cost stock mutual funds.
Whether your interest is investing or in Hollywood, taking unnecessary risk is never wise, but taking calculated, controlled risk is essential to achieving success. If Hollywood avoided any risk, we would never have seen such fantastic genre-breaking films such as “Unforgiven,” “Pulp Fiction,” “The Usual Suspects,” and many more.
· Diversification is key
If you ever lost significant money in the markets, it can only mean one thing: you were not properly diversified. It’s been said a thousand times before: diversify, diversify, diversify (but don’t overdo it or you’re sure to get lackluster returns). Cover the fundamental asset classes, monitor your withdrawal rates and you’ll have a much better chance for achieving long term retirement success.
Ever hear of the Hollywood Studio that distributes only romantic comedies? You never will. Every studio knows it’s impossible to predict which genre will be hot at any given moment, thus the reason year after year you’ll always get plenty of diversified genres to choose from.
The biggest surprise many Baby Boomers and retirees encounter is the realization that their ‘bulletproof’ retirement savings plan is riddled with bullet holes. Living longer, ironically, often means outliving nest-eggs intended to ensure financial comfort.
“The road to success and profitability in Hollywood in many ways mirrors the principles of preparing for retirement,” says Haft. “The entertainment viewed on TV or in theaters is an example of either prudent decision making based on proven principles, or risky ventures that create big problems. The studio hotshots and high-profile actors can teach the public an awful lot about managing money for retirement.”
Alan Haft is based in Boca Raton, Fl and Newport Beach, CA. A well-known personal finance expert, he has been featured in scores of publications including the Los Angeles Times, New York Daily News, Forbes.com and top newspapers around the country. In the early 90s, Haft, with veteran actor James Woods, formed Breakheart Films. While serving as Vice President of Breakheart, Haft was involved with numerous feature film and television projects such as “Killer” (with Oliver Stone as Executive Producer) and HBO’s Best Picture Emmy Award winning “Citizen Cohn.”