There are many reasons my clients seek out a financial advisor.
Some don’t understand the investing complexities and the array of choices, and they would prefer to have an expert deal with it for them. Trust me, I see this a lot—and there’s no shame in that game!
Others enjoy the DIY approach. They love to explore the various strategies of money management. Grasping and understanding new ideas and concepts creates that “Aha!” moment. The issue is, they just don’t have time to do those things, and so they prefer to outsource to me instead.
Then there are those who *were* comfortable managing their own finances, but now that they actually have money to invest, or things have gotten more complex, they suddenly realize they could use a spot of assistance.
If you find yourself in one of these categories, now you know that you aren’t alone.
In all three of these situations, retaining an advisor is akin to having a personal trainer coaching you as you go through your daily exercise regimen. The trainer keeps you on track, encourages you, and can suggest beneficial adjustments.
The personal trainer’s job—and my job too, as a financial advisor—is also to educate clients. That’s why I try and give folks the information and tools they need to understand their financial situations, including the basics of managing money.
Below, I’ve pulled together five tips I give people who want to know the basics. These fundamentals are the building blocks for wealth accumulation over the long term, and it’s important to keep them in mind, always.
1. Avoid get-rich-quick schemes
I’ve been around the block many times and trust me on this: if it seems too good to be true, it probably is. After reading that common-sense advice, you’re probably thinking, “Thank you Captain Obvious! Tell me something else I didn’t already know!”
But I’ll be real, I’ve seen too many smart folks fall for get-rich-quick schemes that leave them poorer. Sometimes much poorer. And it’s heartbreaking to hear the tales. From Ponzi schemes to “hot stocks” and IPOs, there’s no shortage of promises waiting to be broken.
Maybe it’s simply greediness we’re afraid of losing out on perceived riches. Maybe it’s fear—fear we’ll miss out on a once-in-a-lifetime opportunity. Those are all valid human emotions, but also dangerous ones. So if you ever come across something you believe might lead to quick riches, please let me review it with you. I promise I’ll give you my true opinion—no bull.
2. Avoid trying to time the market
It sounds so simple. “Buy low, sell high.”
Or, here’s another take: “Buy when there’s blood in the streets.” There’s a quote that still bounces around in financial circles. Forbes credited the saying to Baron Rothschild, an 18th Century British nobleman and member of the Rothschild banking family. Coincidently, or not, Forbes published the article two weeks prior to the market bottoming in 2009.
In theory, this is great advice. But here’s the thing: for the most part, we’re not wired to dive off a cliff and buy when everyone is selling. Instead, the temptation is to circle the wagons and play defense.
In reality, it’s much easier to buy when markets are heading higher. Euphoria can breed euphoria, which leads to a feeling of invincibility. It’s that “follow the crowd” mentality.
If we had a crystal ball, I’d like to think we’d be benevolent enough to share… but we don’t. So rather than trying to predict when the markets are “down enough to buy” (ahem, that’s market timing), we preach diversification and a disciplined approach that strips the emotional component from the investment plan.
3. Mistakes happen, but you’re never too old (or too young!) to get started
Fun fact: after I quit my first job as a Theatre Arts teacher, I did the granddaddy of bad advice: I cashed out my first 401(k), took the money, and went to Europe.
No joke. I did the one thing that I almost unequivocally caution my clients against.
After that, I got an MBA and did much better with my second go-around. I was eligible for a 401(k) after a year at my new job, around the same time that I got a raise. I ended up routing all the raise money towards my 401(k) instead of spending it, since I was comfortable where I was at, salary-wise, and even nudged my contributions up over time. When I quit that job, I rolled it over into an IRA instead of cashing out, and I was surprised at how much was there without me noticing it missing from my paychecks!
The lesson is this: everyone makes mistakes. Perhaps you already have. But it’s not too late to bounce back.
And one more thing: you can’t start too young. Time and compound interest are your friends. That’s why I’m thrilled when I have the opportunity to speak with people in their early 20s and 30s who are getting started with their careers. They truly have a once-in-a-lifetime chance to get a head start on kicking ass and taking names with their finances.
Both Mark Twain and Andrew Carnegie allegedly said, “Put all your eggs in one basket, and watch that basket closely.” Good thing Twain and Carnegie didn’t live in an age where the dissemination of information is almost instantaneous. Bad news comes in like a WWE smackdown on a stock–and it can happen in seconds.
That’s why we lovingly kick Twain and Carnegie to the curb, and diversify, diversify, diversify. We even refuse to invest in individual stocks here at Young + Scrappy. It’s just not our cup of tea. Instead, we carefully screen efficient, low-fee ETFs, with the goal of selecting a good mix of securities that give you exposure to the longer-term appreciation potential in the US stock market.
And we don’t stop at the United States border, as we recognized the potential the global economy offers.
The only danger is that being 100% diversified in a portfolio of stocks can leave you exposed to a market decline. That kind of allocation is for someone with a very long-term time horizon, which some of you may have. As a result, we frequently supplement client portfolios with small allocations to bonds, cash, and fixed income securities to help give it a sliver of less risky investments.
As you continue onward towards retirement, your investments will change to match your new goals. But along the way, we never forget diversification, not even a little bit.
5. Have a goal
Gosh, there’s another piece of “Well, duh,” advice. But you’d be surprised at how incomprehensive our goals tend to be. “I want to retire. I want to buy a house. I want to pay for my kids’ education.”
Sure, don’t we all?
But by when? What keeps you motivated? How much money will it take? If you can’t answer those questions, your odds of being able to reach your goals go way down.
That’s why we’re big on S.M.A.R.T. goals round these parts. When we reframe our vague goals into goals that are specific, measurable, achievable, relevant, and timely, we get a hell of a lot more done—in the investing world and beyond.
How to Get Started
If you’ve read through these five tips and thought, “Heck, this might be harder than I thought,” allow me to respectfully add one more goal to your list: Come. Talk. To. Me. I want to hear about what’s going on with your finances. Who knows, maybe I can help make this stuff easier for you!
Until then, friends, take care, and good luck growing your wealth!