Myths and rules of thumb...
Ben Carlson, one of my favourite bloggers, has a great piece out today about the myths, rules of thumb and assumptions that are perpetuated in finance, but really aren’t true.
“Clients need more choices, more ideas, more products, more portfolio changes, more everything. Nope. Less is more. The best in this business know how to pay attention to fewer and fewer things — and only the ones that matter.”
I absolutely agree with this. The most important thing when it comes to you and your money is to KEEP IT SIMPLE, and focus on the things that you can control. You can’t control interest rates, economic policy, Trump, Brexit….any of these things. And you know what? Over your lifetime, none of these things actually matter anyway. What does matter….how much you earn, how much you spend, how much you save and how much you invest.
“Complex markets require complex solutions. To me, this is one of the most damaging myths out there for most investors. The simpler, the better (with the understanding that simpler does not mean easier). There are no extra points for degree of difficulty.”
There is a big difference between simple and easy. Everything I talk to clients about is simple – it’s about looking at where you are today, where you want to be in the future and putting together a plan to get there. Simple. Right, just not easy. That’s why everyone needs someone to help them. The most important thing about that person is not that they ‘seem to know what they are talking about’, but it’s ‘do you trust them?’. And do you actually LIKE them? I can’t tell you how important it is to LIKE the person who is helping you achieve your most treasured and dreamed of goals.
“Clients want to be impressed. Finance people have a nasty habit of using jargon to talk over people’s heads under the assumption that clients are looking to be impressed. Some probably are, but most people really just need a better understanding of the complexities involved with the markets and their own investments.”
Jargon, jargon, jargon. How many of you have sat in front of an advisor who has used a whole load of words that mean nothing to you? And you know what, the odds are that the advisor has no idea what he/she is talking about either. If the advisor cannot explain to you in simple English what he/she is recommending and why….RUN.
“Intelligence is all that matters. One of the finance industry’s biggest failings is many blindly assume absolute brilliance is all they need when it’s really a relative game. There are plenty of smart people who are terrible investors because they can’t admit their own limitations. Intelligence is never in short supply on Wall Street, but the correct temperament is.”
I see this all the time….very smart people who have demanding day jobs but think that they can invest their own money in their spare time. But they really don’t understand temperament and emotions. Keeping their own emotions in check is the hardest part of investing. Warren Buffett said ‘the most important quality for an investor is temperament, not intellect’.