Most everyone has made financial mistakes at one time or another that we’ve later regretted. Whether it was piling into the wrong stocks prior to a crash or overpaying for a piece of real estate that we just had to have, most of us have felt the lasting sting of a bad financial decision.
Fortunately we pick ourselves up, dust ourselves off and move forward. But what if we could have prevented that mistake in the first place?
A Buffer between You and Big Financial Mistakes
This is the extremely valuable role that quality wealth management can play in our lives.
If you have a full-service wealth manager or financial advisor in your life, they should be very familiar with your financial situation. They are also an objective voice, paid to help you make the best financial decisions.
They can create an ideal buffer between you and future financial mistakes.
- Thinking about buying an annuity?
- Thinking about buying a vacation home?
- Thinking about investing a chunk into your son-in-law’s business?
None of these are easy decisions.
A Valued Second Opinion on Financial Matters
When you have a wealth manager who is up to speed on your life, this person can give you a purely objective financial opinion. Now, we may not want to hear it. It might be to just rent a condo each year, instead of buying that vacation home. Or it might be to have that difficult talk with your adult child who is continually asking for money that is then spent on frivolous purchases. Regardless….this is invaluable because most of the time, our financial mistakes are driven by emotion. We act without thinking things through, then regret our expensive mistakes.
With a wealth management team, we can get an honest opinion that is not influenced by emotion. We can still choose to act, but at least we’ll act after considering other financial implications that we may not have looked at otherwise.
Closing the “Investor Return Gap”
A good wealth management team can also help you minimize something called the “Investor Return Gap”. This is the gap between what an index fund earns and what the investor actually makes on it. The gap is due to investors buying and selling at the wrong times, usually in response to emotions. According to the article, investors lose usually at least 1 to 2% each year due to these actions.
Most of us have been there. Bear markets, when stocks primarily trend down, are perfectly normal. But when we are in the midst of them, they can be frightening, even for professionals. This is where having that layer between you and your money, again, can help you avoid selling or buying at the wrong times. Instead, your money can be managed according to time-tested principles. While there’s never any guarantee, the presence of the “investor return gap” shows you will likely save a percentage or more each year by avoiding these emotionally driven decisions.
Applying the Right Kind of Pressure
A wealth management firm can also help you consistently do the things that will help you grow and protect your wealth over time. Instead of pressuring you to keep up with the Joneses, your wealth manager will help encourage you to save more, consistently.
And, this is important. A recent survey showed one of today’s retirees biggest regret is not saving earlier in life.
So, as long as you hire carefully, having a wealth manager can potentially save you dramatic amounts in the future, just by avoiding big mistakes.
How much better could your future be if most of your financial mistakes were behind you?
John Odell, CFP® is CEO of Arroyo Investment Group, LLC, a fee-only financial planning and investment management firm based in Pasadena, California. As a GIPS®-compliant firm, we bring institutional quality, high performance investment management and comprehensive financial planning to individuals and families. Together with Capital Research + Consulting, our sister firm, we collectively manage over $4 billion of assets for individuals and retirement plans. Visit us at https://arroyoinvestmentgroup.com/.
