An Advisor’s Top 10 Investment Lessons Learned

An Advisor’s Top 10 Investment Lessons Learned

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Have you made investing decisions you regret?

I know I have. I recently turned 40 and thought it was a good time to reflect on my own investing mistakes and lessons learned from my 17-plus years of experience.

1. Don’t follow the herd


I started investing in June 1999, right near the top of the technology bubble, and made the same mistakes as many others by buying hot tech stocks. Everyone was making money; why not just invest in a handful of technology stocks and watch them go up 20% to 30% per year?

Obviously, this did not happen for me — or many others — as the Nasdaq 100 dropped almost 80% from peak to trough.

Lesson learned: Following the crowd is not a recipe for investment success. It’s OK to be different.

2. The best investment may be the one you don’t make


My decision to not invest in a Myrtle Beach, South Carolina, condo in the mid-2000s was a smart decision. Many “experts” were saying real estate never loses money, but I couldn’t get the numbers to work.

Twelve years later, those same condos sell for 25% less than their long-ago sale price, not even mentioning the ongoing property taxes and maintenance costs. Many investors struggle with the fear of missing out, but resist the temptation.

Lesson learned: Sometimes saying no is the best decision.

3. Invest in your own human capital


In 2003, I decided to go back to school and get my MBA from the Kellogg School of Management. This investment took time and money, but the result was additional knowledge, a lifelong network and a higher-paying job with greater earnings potential. A lot of people try to find the perfect investment, but sometimes the best investment is themselves.

Lesson learned: Making yourself more marketable and attractive to employers through personal development will only help you in the long term through increased earnings and job security.

4. Avoid large holdings of your company stock


Before the financial crisis, I worked for a financial services firm in New York that compensated employees via stock options and employer stock in their 401(k). Financial stocks in the mid-2000s were a lot like technology stocks in the late 1990s; they only went up. Then the financial crisis occurred, and the stock price declined over 90%. In addition, there were massive layoffs at the firm. Fortunately, I survived the layoffs, but many employees lost their jobs and a significant part of their nest eggs.

Lesson learned: Limit your employer’s stock to no more than 5% to 10% of your portfolio.

5. Don’t try to time the market


It’s really hard to time the stock market. Every day you’ll hear or read about one person saying to buy stocks and another urging you to sell stocks. I’ve found the easiest way to invest is to make scheduled monthly contributions to your various accounts — 401(k), IRA accounts529 plans or investment accounts.

This is called dollar cost averaging. The benefit is that if stocks drop, you’ll buy more shares because they’re less expensive, and if stocks rise you’ll buy fewer because they’re pricier.

Lesson learned: Take the emotion out of investing by setting up an automated investing schedule.

6. Avoid the noise


Early in my career, I’d watch popular cable business news programs that would provide “stock tips.” I learned pretty quickly that their goal was to make money selling advertisements, not to boost my long-term portfolio wealth. I’ve stopped watching these kinds of shows and focus on things I can control, such as my savings, life insurance, taxes, estate planning, and so on.

Lesson learned: Don’t get caught up in the short-term noise; focus on the things you can control.

7. Equities are for growth, and bonds help you sleep at night


I started my investing career in 1999, and during the first 10 years I witnessed two of the worst stock market crashes in history with a peak-to-trough decline of over 50% each time. Take your portfolio and divide it by two, and how does that make you feel?

How did high-quality bonds do during this time? They increased in price or stayed flat, which allowed me to rebalance my portfolio. They also helped me sleep better at night.

Lesson learned: A diversified mix of stocks and bonds gives you a better chance of sticking with your investment plan than a 100% stock portfolio. Stocks may provide a greater long-term return, but if you sell at the bottom it doesn’t matter.

8. Implement a disciplined investment strategy and stick with it


There are many investment strategies, and there are times when one strategy will work better than others, but over the long term the returns shouldn’t be materially different. The problem is most people jump to what has done well lately when they should be doing the opposite.

Lesson learned: Implement and follow an investment strategy and stick with it in good times and bad. If you don’t have a strategy, implement one or have a financial planner help you.

9. Control your behavior


Controlling costs is the current fad, which is a good thing for investors, but investors controlling themselves is much more important. Right now that’s easy to say, because the U.S. stock market has done very well the past seven years, but how you feel and act when the market drops 50% will have a big impact on your long-term investing results. Buying high and selling low is not a recipe for investing success.

Lesson learned: If you can avoid pouring too much money into equities when the market is riding high (March 2009) or too little when it’s sinking low (October 2007), you’ll be better off. Studies by Vanguard, Morningstar and Dalbar show the average investor trails the market by 1.5% to 3% per year due to poor decisions caused by wanting to jump on the latest fad.

10. Time is your best friend


I’ve invested for over 17 years and remain amazed by the power of compound interest. I’ve invested through Y2K, 9/11, the ’01-’03 recession, SARS, a real estate bubble, the great financial crisis, Greece’s potential exit from the eurozone, the debt ceiling debate, ebola and four presidents. The global equity markets have marched on.

For example, a portfolio of $500,000 17 years ago with a 5% annualized return would have grown to over $1.1 million assuming no contributions or withdrawals.

Lesson learned: Implement a disciplined investment strategy, be patient, focus on what you can control (savings, taxes, and so on) and avoid a big mistake. If you can’t do this, hire a fee-only financial planner to help you stay on track.

Chad Smith
Advisor
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Chad has spent the last fifteen years helping people discover how they can spend more time on things they enjoy.  He is a Certified Financial Planner (CFP®) an ... Click for full bio

Advisors Will Be Extinct in 5 Years Unless…

Advisors Will Be Extinct in 5 Years Unless…

I’ve had financial advisors for more than 40 years. Not once in those years have I called my advisor to find out what stock/funds I should buy or sell. But I have called to find out where I should get my first mortgage, when to sell my house, or how much income I could get in retirement.

In short -- and I think I’m pretty typical – I was looking for financial advice, as it relates to my life.

Here’s the disconnect, what most advisors do is simply manage their clients’ assets. They determine what to buy, and what to sell, they think about risk management, about growing their practice by finding new clients and about getting paid.

Historically that has been the business model. But as more women take control over financial assets, they, like me, will be looking for a different experience. And unless the financial community is willing to change ….. advisors, as they are today will be extinct in five years.

Advisors who want to survive will have to do a lot more than just manage money – they will have to provide genuine “advice”.  That means doing what’s right for the client, not pushing product and pretending it’s advice.

Women especially, but all investors generally, are becoming more and more cynical. They says, “If I want advice about reducing my debt, that’s what I want and not ‘here’s more debt’ because that’s what my advisor gets paid for! And if saving taxes is what I want then saving taxes should take precedent over selling me a product.”

You may be thinking that spending your time providing advice isn’t lucrative but the reality is that in the long run – it pays off in spades. The advisors who take the time to build real relationships with clients, who provide advice as it relates to their clients’ lives, even when there is no immediate financial benefit to themselves, those who don’t simply push product – are the ones who over time have the most successful practices.

Generally women understand and value service, but they will say, “If I’m paying, I want to know what I’m paying for: Is it for returns? Is it for advice? Is it for administration? I want to know. Then I can make up my mind what’s worth it and what isn’t.”

Investing is becoming a commoditized business and technology is replacing research that no one else can find. Today the average advisor is hard pressed to consistently beat the markets, and with women emerging as the client of the future, unless they start providing real advice, their jobs will likely be extinct in five years.

Learn how to Retain Female Clients through this online course and earn CE credits. Or visit us at here and learn everything there is to know about what women want and how to serve them well.

Strategy Marketing
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Paulette Filion and Judy Paradi are partners at Strategy Marketing and have run their own businesses for more than 20 years. Paulette is an expert in financial services and Ju ... Click for full bio