Written by Lee Stoerzinger, CFP®
There’s something about the financial services industry I have found very interesting over the years. It’s the narrative that investing is easy to do on your own. As it goes, you can either invest your money on your own behalf or you can pay someone else to do it for you, thereby incurring extra costs. According to this narrative, these are the two choices. Well, as you may have guessed, we have some thoughts on that.
First, we agree that having investments and knowing how they are managed is extremely important for long-term success. This includes understanding cost, tax management, diversification, etc. However, we also know this is just one part of a bigger picture — the financial plan — which includes time frame, risk tolerance, legacy, and all the other things which make up wealth management. Dare I say that in reality, it is the plan that guides, not the investments, as they should be working quietly in the background. Without this understanding, there can be all sorts of issues that arise. I digress. Let’s get to the main point of the story.
So for the sake of discussion, let’s just say the only thing that matters is investing. Forget about financial planning for the moment. Why not just do the investing on your own? After all, it’s so easy to do. Just go online, set up an account and away you go. Here’s why not — blind spots. We all have them and they definitely apply to investing. Blind spots can be categorized in many ways including biases, emotional behaviors, confidence factors or just rationalizations. It’s one thing to invest the money, but it’s entirely different to see how we react to fluctuations with those funds in the markets over time. It’s amazing how little the idea of our own biases is discussed as it relates to investing (outside of academia and the behavioral sciences), especially since our human reactions can have such a large contribution to investment results over time.
Think about this: why do professional athletes have coaches even though they are the best in the world at what they do? Why do musicians have teachers or high-level executives have mentors? Because they all know they need someone to help them sort through their blind spots so they can grow and improve more than if they were to go it alone. And so it goes with investments. With so many complexities in investment management, working with an experienced partner can make a significant difference in long-term success. It’s not about paying or not paying someone. Instead, it’s about having a team of people to develop a long-term plan with you and then work with you every step of the way, managing your blind spots and keeping you on track. It might not fit the narrative that sells media spots, but I would bet for it every time.