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If you know us at all, you have heard us say this time and time again:

Humans stink at investing.  

Behavioral biases cause us to make irrational decisions way more often than we care to admit.  Our firm is built to improve this well documented flaw through use of research supported, rules based investing.  

As a reminder, we define irrational behavior as anything that’s sub-optimal behavior.  It’s logical to think that investors behave rationally and make optimal decisions – but it’s not reality.

Most of the time, we are pointing this irrational behavior out in the context of portfolio management.  Unfortunately, this is not the only scenario in which it applies in the investment world – it’s much broader than that, it applies to the choice of a financial adviser as well.

When choosing somebody to assist you in managing your money – that decision should be based on nothing other than who, within your opportunity set, can best help you leverage your investable assets to maximize the benefit, not just for present day you…but for FUTURE you.

What should be considered?  Broadly speaking, here are two points:

  • Expertise – Do they have an expertise?  Can they prove it – not in words, but with data?
  • Structure – Are you accessing their expertise as efficiently as possible, or can you get access to similar expertise at a lower cost? What all parties are involved? Demand to not just see, but UNDERSTAND all costs associated.

We urge investors to do the following:

  1. Don’t associate different with risk – Investigate what makes a potential offering different and if that difference is truly valuable. Just because something may be different than what you are familiar with does not make it risky.
  2. Hold your current financial person accountable.  Demand to be educated on the what and why of your relationship – cost, strategy, etc.  Demand transparency, the answers to your questions should be easily found.  Be sure there is value there and that it can be demonstrated.  
  3. Investigate your options.  Don’t make decisions because of familiarity – don’t keep doing what you are doing because that’s all you have ever done.  Just because it’s what you have always done doesn’t mean it doesn’t stink.

Relationships in the financial services industry are important.  In fact, they are the root of what we call Investor Inertia (not sure if anybody else uses this phrase – can we trademark it?).  Investor Inertia is when investors stay invested with and how they currently are even when shown a better opportunity.   That decision is based on familiarity or not wanting to hurt somebody else’s feelings.  Financial decisions should not be based on feelings or familiarity.

I am a witness to the power of Investor Inertia, which I cannot claim to understand, but what I can claim to understand is the power of TIME.  Time is the most influential asset of them all.  The more you have of it, the more it’s effects will be felt – both Good and Bad.  Think about that:

Bad decisions today will be amplified tomorrow.  

The consequences of bad decisions today will manifest as opportunity costs.  It’s your hard earned money we are talking about here, don’t let the driver of your decisions be familiarity or feelings, or anything else that’s irrelevant to your success as an investor.   Review your current situation – the structure, the strategy, learn why, demand transparency.  Make sure you are maximizing your future benefits today.