THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Sunday, September 8, 1996 TAG: 9609070411
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
TYPE: Interview
LENGTH: 100 lines
Seventeen years ago, H. Lynn Hopewell was ready for a career change. He considered studying law and then decided to take up financial planning.
Having a master's degree in business administration from Harvard Business School helped. ``I had a background in finance that needed only a little bit of tweaking,'' the 58-year-old Portsmouth native said.
Hopewell had spent 10 years working for computer and electronics companies in the Washington area. Before that, he had traveled throughout the world doing electronic communications work for the Central Intelligence Agency.
``I got tired of working in large organizations. I wanted to do something on a smaller scale and in my community,'' said Hopewell, who lives in Northern Virginia.
Today, his financial planning firm, The Monitor Group Inc. in Fairfax, has 110 clients and manages $100 million of funds.
Hopewell recently returned to Old Dominion University, where he studied for two years before transferring to Virginia Tech and getting an undergraduate degree in physics. During his visit to ODU, he spoke to a finance class about developments in financial planning. Afterward, he talked about that topic with staff writer Tom Shean.
What's the biggest mistake that individuals make when saving for retirement?
One is failing to aggressively invest their funds. People think they've dealt with the risk by putting their retirement money in the bank. But there's another risk: the loss of purchasing power. That loss is just as real as if somebody stole half your money. Not starting to invest early is another mistake.
What about the risk of losing money from a downturn in the stock market? Investors have been reaping above-average returns in the stock market in recent years, but that can't continue forever.
People often think it matters when it doesn't. If you're 30 years old and you're saving for retirement, who cares? What's important is the average growth rate.
What questions do your clients frequently ask you?
``What can I expect to earn from my investments?'' is one. If they are retired, they often ask, ``How long will my money last?'' and ``What can I afford to give away.'' Often, they're not sure how much of their principal they can afford to spend.
What advice do you offer those clients interested in buying stocks?
I don't think any investors who have regular jobs should be buying individual stocks. Mutual funds make overwhelming sense. You get instant diversification and expertise. The task of buying individual securities is much more difficult than buying a manager. Unfortunately, many people use investing as a toy to entertain themselves. They're seduced by the action.
What's the toughest part of your job?
Unhooking people from the conventional wisdom that investing is exciting. I try to break them from the habit of looking in the newspaper every morning to find out how their mutual fund is performing. Day-to-day performance shouldn't matter.
How do you invest your own retirement money?
My portfolio is just one more portfolio at the firm and invested much like the others. The first issue we address is, How much should there be in equities and how much in fixed-income investments? For the equity portion of a portfolio, we use a mix of asset classes, including mutual funds with large and small stocks, domestic and foreign stocks, value and growth stocks.
How much should someone's mix of investments change once they have retired?
As time goes by, they have less opportunity to recover from bad markets, so the equity portion of their portfolio should be gradually reduced. Most people should start out with at least 60 percent of their portfolio in equities.
When should someone consider using a financial planner?
That's hard to answer. People need financial planning as soon as they're on their own or when starting a family. The most important thing is to set some goals.
What should they consider when shopping for a planner?
The first thing I would look for is someone who is compensated by fees instead of commissions on financial products. That way the planner avoids any conflict of interest. I would also look for someone who has been in business for five years or more.
How much should someone expect to pay a financial planner?
Some planners offer flat rates, but you should expect to pay what you'd pay a lawyer or accountant. For a young couple, a planner could do something for them in a couple of hours, but it's not unusual for a planner to work for an entire day on a plan.
Are there any warning signs that might indicate that a person should switch to another planner?
Is the planner in a hurry? If you're getting investment recommendations 10 minutes after you've begun talking to them, that's a red flag. You should expect a planner to gather a lot of information and ask you a lot of questions. If they skimp on that, it's another red flag.
More and more computer software is available for individuals who want to do their own planning. Will these programs replace the need for financial planners?
For the great middle market, there are tools to help them set objectives. Mutual-fund companies have inexpensive tools for figuring out how much you should save for education or for retirement. But these programs don't tell you how to invest it. A recent study of mutual-fund performance indicated that individuals got lower returns than their mutual funds. Why? Because they buy high and sell low. When they get scared, they take their money out. by CNB