3 Misperceptions that Threaten Your Investing Future

Nick Hodges, CPA/PFS, MBA, CFP

Hour-by-hour, we are bombarded with a whirlwind of conflicting investment information. We read it on the internet, we hear it in the broadcast media, and we talk about it with advisors, friends, and family. Somewhere in this mix of choices, information, and opinions, every investor is looking for an advocate: Someone they can trust. Someone that will understand their current situation, educate them on their various options, and see them through to accomplishing their lifetime plans. Let’s take a moment to visit some of the most common misperceptions surrounding the investments arena.

Media Hype
For many individual investors, the print and broadcast media is their main source of investment information. The nightly news features any number of current financial ‘experts’ to tell you what you should and should not do with your investments. All sense and sensibility scatter when your chief financial advisor is the current financial media sweetheart. Remember, the media is not in business to educate you; it’s there to make money on advertising. Whether it’s a business reporter or financial editor, popular author or radio host, the information presented is sensationalized to keep you engaged through the advertising spots they’ve sold to their sponsors. Even if there is some truth in their story, it may not be the right information for you. Extenuating circumstances related to your unique situation can make their financial advice the WRONG advice for you. I talk with clients throughout the year regarding media stories that focus on the sensational and miss the important, causing them to worry, struggle, or panic about their investment picture.

In an industry that is designed to reach the individual investor WITH ADVERTISING, you need a financial advocate you can trust to help you sort through the news and keep you focused on what is truly important for you. Don’t depend on media advisors to give you trustworthy advice for YOUR financial future.

Wall Street Products
Going back to the beginning of what call “Wall Street”, we find that it started simply as an easy way for owners of business shares (stocks) to trade those shares with each other. Instead of having to make each trade directly with each company, investors decided to gather and exchange shares with one another. For a fee, a percentage of the trade, “Wall Street” was born. Through the various financial cycles, Wall Street has responded to investor demands for new and creative ways to invest their money. Over time, Wall Street has grown into a vast, complex industry, savvy about selling their investment products. By understanding that the greatest catalyst for human action is fear or greed, they have created promotional materials and sales incentives that reach these emotions. They incentivize their salesmen to push specific products by offering them huge, up-front commissions on any sales. In turn, they train their salesmen to appeal to investors’ emotional makeup with respect to the buying process. None of this is right or wrong, it’s just business. Every good business provides products buyers want, and positions them to be sold via salesmen and advertising. Wall Street is a for-profit industry that supports product sales and services. And every year it introduces new products that may or may not be right for you.

You need a strong advocate to escort you through the business mindset and myriad of products on Wall Street. You need to work with someone that has a measure of independence from the Wall Street sales structure of commission incentives and emotional sales tactics. You want YOUR financial advocate to be independent, objectively guiding you through the choices that are right for you, and protecting you from making emotional, irrational decisions based on fear or greed. Remember, Wall Street was not created to be YOUR financial advocate; it was created to be a profitable investment business.

Multiple Advisors’ Opinions
Advice: Investors want opinions, perspective, and clear direction for the future. They want the right product for their investment goal. And they want to make sure that they aren’t taken advantage of or deceived in the process. Ponzi schemes have made the Madoff name infamous. Major companies like Enron and Worldcom have disappeared overnight, jeopardizing retirement plans. Because there have been cases of fraud and abuse in the financial services industry, many investors are wary of working with just one advisor. As a result, they turn to anyone and everyone that will talk with them about their investing: they talk with family, friends, and professional acquaintances. They read financial blogs and visit investment ‘chat’ rooms. Everywhere they turn, someone has a different opinion about what investment is best for what situation, but nowhere do they find the specific advice they need for their financial future.

Somehow thinking that there is safety in numbers, the individual investor seeks to develop a team of advisors across several financial arenas. They might work with an accountant to file their taxes, a financial planner to plan retirement, a stockbroker to buy investments, insurance agent to buy insurance coverage, an attorney for legal documents governing estate needs, and banker or mortgage broker for their credit needs. However, the typical result of working with multiple advisors is conflicting advice. And without the necessary education, background, and experience, individual investors are uncertain how to decipher the implications of each different opinion. Additionally, most investors do not have the time or resources to learn enough about every financial arena to know what advice is right for them.

Whether it is talking with family and friends, or managing a team of advisors, when people are faced with uncertainty or conflicting information, they usually freeze and do nothing. Many times, doing nothing is the worst thing to do. I have seen trusts go unfunded, money tied up (or lost) in inappropriate investments, incomplete retirement planning, additional taxes incurred and beneficiaries missed in inheritance distributions. To nearly a one, it was because the investor was uncertain about what they needed to do. What they each needed was a single financial advocate to help them create a flexible plan, keep them on course, and guide them through the unexpected; an advocate that understood the breadth and the interactions of their unique financial world.

Does confronting these misperceptions make investing wrong? No. But it does mean that you need a strong financial advocate to help you successfully navigate the ocean of complexity:

• Sort through sensationalized news; work with an experienced financial advocate.
• Evaluate the myriad of options; work with an informed financial advocate.
• Eliminate emotional investing; work with an objective financial advocate.
• Implement appropriate products; work with an independent financial advocate.

No matter where you seek investment information, products, and advice, if you are not working with a personal financial advocate you trust, you are interacting with a source that is likely trying to sell you something. What you need is advice, experience, and perspective for YOUR unique situation: a financial advocate for YOU.