As financial advisers, we have learned that a client’s frame of mind is every bit as important as the particulars of what the markets are doing, how a stock or fund is performing, or what the economic outlook might be. Some investors are aggressive and want to be in control of everything, minute by minute. Others are so passive that they don’t want to be bothered with any of the specifics of their portfolios.
I think both extremes are counter-productive. While I can’t change a client’s psychological makeup, I can offer guidance about useful ways to think about investing, and how closely to pay attention. Many of my suggestions will boil down to this simple truth: a happy medium is best, both for the health of your investments, and also for your own mental health.
You may have heard the old investing adage, “Sell in May and go away.” That’s based on the idea that markets tend to be most volatile in mid-year. So if you sell your stock holdings in May, you avoid potential losses until October, when you can buy back into supposedly more stable equity markets.
Whether that strategy is wise is a subject for another time. But I mention it here because it’s one way that investors may follow a formula or a catch-phrase, but don’t really think too hard about actual realities on the ground – or on the markets’ trading floors.
That kind of thinking can get people in trouble, because while certain trends may be true in general, or in the long run, or on the average, sometimes reality bucks those trends. And bucks them hard. So the hands-off investor may not be working in his or her own best interests. “Out of sight, out of mind” can help you avoid worry, but it also means you may not be able to react intelligently to circumstances that require your attention.
If you don’t watch the market at all, your view of the investment world’s reality comes not from the facts, but possibly from people with an interest in your not understanding what’s going on. That’s how many very smart, prosperous, competent people get taken by the Bernie Madoffs of the world.
Just as bad, or worse, are those clients who watch the market a little too closely. And just as the markets go up and down, so does their blood pressure. These micro-managing personalities don’t just deny themselves peace of mind. They can also fall victim to the delusion that they can somehow outsmart the market, knowing exactly when to buy and when to sell. That’s nearly impossible for even the best experts to manage, and typically results in wasteful “churn,” unnecessary transaction fees and commissions, and missed opportunities for growth.
So that gets me back to that happy medium. I believe the smartest approach for you as an investor is to be aware, but not obsessive, about what’s going on with your holdings. And to find, and stick with, a trusted adviser who has your best interest at heart. There is the big question, of course. Who do you trust? And how do you know that your adviser shares your interests?
Well, part of that is personal and psychological. It’s never a bad idea, when developing an important relationship, to trust your gut. Do you get a good feeling when you’re dealing with somebody you’ve entrusted your finances to? Don’t discount that good feeling. And never ignore a bad feeling.
Also, it’s a good idea to pay attention to references from friends, relatives and business associates. I’m not saying drop everything to hire that hot new broker that your cousin is breathlessly promoting to you. But do listen to the voice of experience from people you trust about how well an adviser or portfolio manager listens, understands his or her client’s values and objectives, and explains his or her recommendations.
As I have said in other articles, the best financial adviser is one who truly cares about you, understands your family situation, and knows your goals. When you’re talking with your adviser, do you feel like a human being, with a history and a future? Or do you feel like a number or a dollar sign?
Beyond the question of personal trust is the matter of fiduciary responsibility and a vested interest in your financial well-being. One matter to consider is how your adviser makes money. If it’s from commissions on trades, even a well-meaning broker may unconsciously steer clients toward buys that may be more profitable for him than for his client. Advisers who earn their living from fees – a set percentage of assets under management is a typical arrangement – share your interest in making your portfolio grow, and not just in the short run.
So let’s stipulate that you have that trusted adviser, and are following a well-thought-out strategy with clearly defined objectives. Don’t wash your hands of the whole situation.
You should still take an interest in what that adviser is doing. Knowledge is power, after all. Don’t understand a decision or recommendation? You should ask questions until you do understand. Think a suggestion doesn’t jibe with your goals or comfort level? A good adviser will want to hear your concerns, and will be willing to talk about them.
But eventually, for the relationship to work, you have to let your financial advisers do their jobs. As Ronald Reagan once said, “Trust, but verify.” And then, having done so, don’t try to do your advisers’ job for them!
Old North State Trust, LLC (ONST) periodically produces publications as a service to clients and friends. The information contained in these publications is intended to provide general information about issues related to trust, investment and estate related topics. Readers should be aware that the facts may vary depending upon individual circumstances. The information contained in these publications is intended solely for informational purposes, is proprietary to ONST and is not guaranteed to be accurate, complete or timely.
Susan Willett is the director of trust services and oversees all aspects of trust administration for Old North State Trust, LLC. Old North State Trust, a North Carolina chartered trust company, provides: asset management services; income, estate and trust tax consulting; retirement planning and administration; and trustee and estate services to both individuals and businesses. Old North State Trust professionals have many years of experience and for over a decade have assisted clients in identifying and reaching their financial goals. For more information, visit www.oldnorthstatetrust.com or call 910-399-5470.
Audrey Elsberry - Sep 22, 2023
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