The Best Advice
Most of us understand Jason Zweig’s comment, but so very few of us stick to a discipline that follows a buy low, sell high approach. Fewer yet can tune out the bad news, or not get caught up in “the hype.” Most of us need an adviser to create a long term plan, stick to the plan, and not get sidetracked. There are a myriad of reasons to have a fee-only 100% pure fiduciary adviser, but perhaps a few recent stories may help you understand the real value of quality advice.
Simply put, the human brain is wired to create poor financial decision making. Generally, when it comes to money, we feel secure when we should feel insure, and we feel nervous when the risk of loss is actually quite low. This has been clearly demonstrated to me in the past few months.
In the latter part of January I received a phone call from a long time Talking Real Money listener. She is in her 70’s and has kept her money in CD’s since the market decline of 2008. She wanted to invest a substantial amount of her savings in stocks and needed guidance on which mutual funds to use, how much of her money she should have in stocks and what I thought would happen next with the stock market.
I was flabbergasted: why would she want to “get into” stocks now? Her answer was simple, ‘I am missing out on the big gains in stocks.” It took 2 phone calls, but I was able to convince her (I believe) that while “everyone else was getting rich”, she didn’t need to jump into stocks, and take risk with money she might need, to make money she didn’t need!
Just a few weeks later, as stocks dropped into a “correction,” I was called by a young (about 30 years old) 401(k) client. With stocks dropping, he said, isn’t it time, to sell his stock mutual funds and move into safer investments like the stable value bond fund. I cautioned him about being a market timer, reminded him he wouldn’t use the money in his 401 (k) for decades, and that, in the long term, stocks have made investors more money than “safer” investments. After considerable discvussion, he agreed to stay in his current asset allocation. Again, I was able to keep an investor from making a somewhat tragic U-turn.
A good adviser listens, understands and advises. A good adviser keeps others from making poor, emotional decisions. A good adviser also does what is right for the client.
Further, a good financial adviser should know — after research and calculation — what rate of return a client needs. And know a client’s ability to handle volatility. However, those are the easy parts of being a fiduciary adviser. The real work starts when a plan is tested by human emotions.
The toughest part of being an adviser it telling someone “no” or that they are wrong. Too often “advisors” agree with their clients when it comes to changing tactics, allow them to move into hot investments or permit them to submit to powerful emotions. Good advisers tell their clients not to succumb to media, friends, and other pressures that make us all want to do “something.” Good advisers make you stay the course, stick with the plan, and, hopefully achieve your goals.
My father, a successful physician and US Air Force Colonel, once told me that the secrets to his business success were being “affordable, affable and available.” Good financial advisers, at times, need to also be adversarial. Telling a client they are wrong, or about to make a bad decision isn’t easy, but, in the long term, might be just what the doctor ordered.