Photo credit: jb
Trying not to be self-serving with this – I am, after all, a financial advisor. The point of this post is to explain that, in spite of all of the negative press that folks in the financial advice-giving business often receive, there are still very good reasons you might need a financial advisor on your side. You definitely need to make sure you’re been careful about choosing the advisor. There are plenty of articles to help you find one when you need a financial advisor.
The Basics
As I’ve mentioned here before on several occasions, there are three primary things that you need to do to be successful at financial stuff. Those three things are:
- Organization – understand what you have, where you have it, and how it is presently invested. This is followed by developing a good plan for saving and investing toward goals that you’ve set for your financial dealings.
- Discipline – once you’ve developed the plan, stick to it. At the same time, continuously review your decisions to ensure that they are correct for the long term, adjusting only when positively necessary.
- Efficiency – don’t waste time, money, and your sanity chasing the trends. Maintain cost efficiency, tax efficiency, and time efficiency by automating your processes and avoiding superfluous moves.
A fourth tenet of success in financial dealings that I’ve mentioned recently is Purpose. This has to do with your goal-setting, ensuring that you’ve determined your own higher purpose in life, and from that you can align your activities to be certain that you are achieving those ultimate goals for your life.
Reasons That You Might Need A Financial Advisor
One of the poor habits that we (the collective “we”, meaning most all investors) have is often referred to as “confirmation bias”. What this means is that we 1) require much less information to form an initial opinion about something than it takes for us to change that opinion; and 2) we have a tendency to pay more attention to, and give greater weight to, information that supports our opinion than to information that contradicts our belief.
A second poor habit is referred to as “herding” – meaning that we’ll often follow what the popular press is reporting as the complete picture, rather than something with short-term meaning and little relevance to the longer term. When herding is playing out in the upswing times, our confirmation bias causes us to hold back and not get involved early on in the herding activity. But once we have joined the herd (too late), even if a downswing is imminent or under way, the confirmation bias that we hold so dear keeps us from “pulling the trigger” to get out (once again, too late).
The upswing/downswing behaviors are further accented by a natural human tendency to avoid recognizing losses, because they hurt more than gains feel good (2.7 times more, some researchers have estimated!). We’d be better off in the long run to pay no attention to the short term upswings and downswings and keep our eyes on the long term.
The third poor habit is our tendency to believe that activity is required to “fix” things – as well as having a short-sighted point of view. So, even though we are investing toward a goal that is ten, twenty, or thirty years in the future, we still agonize over each quarter’s results, believing that we need to take some sort of action based upon an up or down result in the previous 90 days.
When you have a trusted financial advisor, she can help you to address these habits. This process follows the three tenets mentioned above (four if your advisor is being totally comprehensive in helping you with your financial life). With a properly organized financial plan, followed with strict discipline in an efficient manner, you should be able to avoid those three habits that cause so much grief.
Maintaining the long term view often means having to “sit on our hands” – because the three habits I mentioned above combine to nearly force us to do something, when the right move is to do nothing. As has been quoted many times of late: Don’t just do something, sit there!