A successful financial relationship is akin to a busy two-way street with a steady flow of communication traffic. This means trusting your financial advisor enough to share private information beyond your strict financial figures – including your biggest hopes, fears, and dreams - and then listening to and accepting their guidance.
We have been in the financial advisory business since 2003, and cumulatively our leadership team has hundreds of years of experience in helping people sustain and grow their wealth. During that time, we’ve seen a lot. We have maintained our focus on building trusted relationships with our clients through it all. We continually help design and build a purposeful financial life over time that maximizes the probability of achieving the outcomes that are most important to them throughout a wide variety of market, social, and political circumstances.
Occasionally, people make significant financial mistakes, even when working with a financial advisor. Generally, however, people's biggest investing mistake is neglecting their financial advisor’s expert advice.
Specifically, people get into financial trouble when they:
Do not act on their advisor’s advice
Fall into the trap of chasing passive income
Lead with emotion rather than logic, especially when it comes to investments.
Let’s look at these three big financial mistakes in detail.
Financial Mistake 1: Not acting on your financial advisor’s advice
One of the most important things you can do to improve your financial situation, particularly when paying for a fee-only & planning forward financial advisor, is to take action on the financial plan you and your advisor created.
We almost always finish client meetings with a list of to-dos; some rest with us, and others with clients. It’s up to every individual to do their assignments, such as executing forms and gathering documents. Often, your advisor cannot legally complete these tasks for you because it’s ultimately a matter of privacy and security. Although, we’re almost always happy to set up a time to work on tackling homework items together because that’s often what it takes to make sure our clients are making progress.
It’s a bit unrealistic to expect your advisor to keep track of every assignment for every client. Take ownership of your assigned tasks and hold yourself accountable; we rely on you to ask questions or raise concerns whenever you hit a snag. It’s rather difficult, or impossible, to complete steps 2 and 3 if step one is still outstanding. Like most things in life, the more effort you put in, the more you’ll get out. What to do instead: Do your homework! Take notes on your assignments, schedule them in your calendar, report your progress to your advisor, and ask for clarification or help when you need it. Be the squeaky wheel that gets the grease.
Financial Mistake 2: Chasing passive income
With investing, a good rule of thumb is, "If it sounds too good to be true, it probably is." Too many clients have come to us with some variation of a "get rich quick scheme" or an offer they "can't refuse." Even more common is the notion that you can simply kick back and rake in monthly payments from investing in something like a car wash or laundromat. Sorry to break it to you, but these are business ventures that require a lot of time, effort, and headaches.
You need to hire people, set up payroll, pay taxes, advertise, buy insurance, etc.
Despite our advice against falling for the passive income trap, some often cannot help themselves, believing that owning an Airbnb is a great way to get something for nothing. It's not. If you have the time, energy, and passion for managing one or more investment properties, they can provide excellent returns. Don’t convince yourself that it’s an easy way to make more money. Even if you pay a management agency, you’ll still need to be involved, not just when it’s compatible with your schedule.
The best "set it and forget it" income is traditional investing (stocks/bonds/mutual funds/REITs/etc.) Furthermore, a financial advisor can make that even easier by taking care of the rebalancing, placing trades to raise the cash you need, and more.
What to do instead: Take advantage of the global stock market and tax strategies. Work with your advisor to ensure that your investment portfolio is low-cost and suitable to your risk tolerance, preference, and capacity. Withdraw money when you need it; otherwise, simply let your investments do their thing. Remember that the daydream of greener grass is much better than the reality.
Financial Mistake 3: Emotionally-led investing
When we work with clients to design a financial plan, we talk about desires, preferences, and numbers. Financial planning conversations can be very emotional and empowering. However, the execution of the agreed-on financial plan should be based on logic and reason.
Too often, clients bring their emotions into the action part of the process. Some of the emotionally-led mistakes we’ve seen recently include:
● Feeling the need to have access to cash and giving up potential investment returns.
● Hesitation to invest because a recession is looming.
● Trying to time the market or pick a particular winning stock; often because a golf buddy or neighbour provides a compelling argument.
● Refusing to spend “hard-earned money” to have taxes done professionally.
● Being too heavily invested in or not selling company stock or other investments because of an emotional attachment.
What to do instead: Above all, remember you can ask a question with your heart, but you ought to answer it with your head. Refer back to your plan. Ask yourself why you’re making the decisions you're making – and is the decision in the best interest of the plan? Call your advisor, discuss your concerns, and listen to their advice with an open mind.
The Bottom Line on Your Bottom Line When you work with a relationship-driven financial advisor like Gold Medal Waters, you’re choosing to do more than pay us to invest your money – you’re choosing a two-way relationship. We can help you identify the real purpose of your money and determine the best way for you to achieve your desired outcomes, but there are a lot of things an advisor simply cannot do on your behalf. To make the most of your investment in an investment advisor, you have to do your part.
For more information on working with a financial advisor, or to speak with a member of our team, contact us today.
