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Success in Life Doesn’t Always Equate Into Financial Acumen


Success in Life Doesn’t Always Equate Into Financial Acumen

Do you wonder if you really need a financial advisor?

A big part of our work is to guide clients to make decisions that are in their best interest. Our advice is often the only thing standing between them and the “big mistake.”

No, not the run-of-the-mill misstep that is part of everyday life… but the lifestyle-altering mistake. A client recently told me “you know outcomes.” Indeed, our vantage point allows us to see the real- life impact from both good and bad decisions.

Success in Life Doesn’t Always Equate Into Financial Acumen

It is easy, particularly for those of us with the Y chromosome, to conflate expertise in one area of life, such as your business, with expertise in the personal financial realm. This may be the most common malady we see in successful high income clients.

The outcome from this delusion is often a skewed collection of investment assets, heavily tilted towards the direction of the supposed expertise. This is the first large step towards the big mistake.

Big mistakes start with lack of perspective. That is, you become overly enamored with a particular investment category or asset type. That makes your asset composition “lumpy” instead of smooth.

The Importance of Diversification

We often remind clients that diversification means that “you never make a killing, but you don’t get killed.” That’s the essential tradeoff.

In some ways, investment diversification is the financial equivalent of saying, “eat your vegetables.” It may not always be the most alluring option, but diversification is smart and helps reduce risks that have no expected return.

Those last three words, no expected return, cannot be overemphasized. There are no perfect investments. Some investments that have strong emotional ties, such as real estate or gold, have zero or near zero real, inflation- adjusted, expected returns over the long-term.

Are there cases where this isn’t true? Yes, but the plural of an anecdote is not data. Rather, it is an exception to the general rule.

The problem is exceptions to the rule “feed” the addiction to the errant asset categories and the second phase of the big mistake is then underway. Before you know it, you are fully engulfed in the belief that following this risky path will work.

Related: How to Overcome The Most Important Daily Battle Investors Face

Mistakes Can Derail Your Plan

Think about your favorite sports team. Each game they arrive with a game plan for how to defeat their opponent. What derails these game plans? Often it is mistakes…turnovers, steals, and fumbles. The same holds true for your financial life. Big mistakes can sink an otherwise good plan.

As a fiduciary advisor, we essentially are in the human nature business. For us to be effective, clients need to be open to guidance and coaching. Our advice is based on decades of experience with observed outcomes and focused on the most reliable way to build wealth for the future.

If you can connect your present with your financial future, you have taken an important first step towards avoiding the big mistake. All of your choices and decisions have context.

Always remember your most important desired outcome and hold that up against every financial choice. The answer is usually clear.

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