When I started this newsletter, I was worried that I would run out of things to discuss. Now that I've been at it for a few months, I've realized that there is a never-ending supply of material which deserves comment. Some of it is behavioral finance, some primarily economic commentary, and some squarely within the personal finance realm. Putting my thoughts to paper has become one of my favorite times during the week.
So what did I read this week?
As a rule, I don't make guarantees. In my line of work, guarantees are a big no-no. That said, I can guarantee that I can and will make mistakes. We all do, it's part of being human.
What I've learned is that often, the mistake isn't the important part. By definition, there is always a margin for error and sometimes, they just happen.
What is important is how a mistake is handled. Part of being a business owner is accepting that all mistakes are my fault, even if I didn't actually commit the error. The other part is to rectify the error. Find a solution and make it happen.
I've always believed that you learn as much from bad employers as good. One of my previous employers had a habit of blaming his employees for all mistakes, to the point of calling the client with the employee on speaker phone, so the client could hear the employee being "flogged". My old boss got it half right in that he did fix problems for clients. He was wrong when he blamed employees for his own mistakes, saying it was for the good of the firm. Leadership is taking responsibility when others mess up and giving them credit when you win.
What does it mean to be a financial advisor? Does it mean something different if your money guy calls themselves a financial planner instead? Are all advisors the same?
Lot of questions to answer and I can't tackle all of them here. The short answer is that anyone can call themselves a financial advisor. There isn't any specific legal requirement, be it education, experience, or fiduciary duty to the client. Many advisors obfuscate how they get paid. In the past, I worked for firms who were paid in half a dozen different ways from one client. I know that client didn't understand what they were paying and it shouldn't have to be that complicated.
So what should you look for in an advisor? You'll want fee-only, fiduciary, and a CFP. These are pretty much non-negotiable. Fee-only means that the advisor only gets paid by you, not through commissions or kickbacks. Fiduciary means that the advisor is legally required to put your best interests above their own. CFP's are Certified Financial Planner professionals, advisors who have certain experience, education, and have passed a comprehensive exam. You’ll also want to check them out on Brokercheck to make sure they don’t have any disclosures of which you should be aware. Past this, you’ll want to interview advisors about their average clients and make sure that they have experience working with clients like you. The mindset and motivations for someone looking to retire at 40 are different than a client who has worked in the same job for 40 years. Retiring early also brings up a different set of technical issues, dealing with tax implications and healthcare, as well as a gap before Social Security kicks in. You’ll want to make sure that any potential advisor has experience in dealing with the issues you'll be facing.
So how should the rules be changed to differentiate between advisors and salesmen? I'll leave it to you to check out the article below.
I say it all the time, but investing is one of the few places in life where you get more by doing less. Many investors get themselves in trouble by chasing returns and trying to time the market. The truth is that most returns are attributable to the overall market, and more specifically time in the market.
So what does it mean to do less? First, set your goals. When do you need access to the money? This sets your investment horizon. Next up, what is your risk tolerance and risk capacity? Risk tolerance is a behavioral term and it just means how much market volatility can you take? Risk capacity is your ability to weather a downturn in the market. If the market pulls back 10%, will it affect your financial plan? Once you know these things, you can set an asset allocation that matches your situation.
Once you have the allocation set, now begins the wait. Investments are like aging wine, growth happens even if you can't see it. The less you do, past regularly rebalancing, the more likely you are to disturb the growth.