“All I have to do is make the financial investments myself.”
These were the words of a potential client. A successful professional, he went to a business planning company to set up his payroll and 401k account. After the meeting, he told me that he would no longer need my services.
After all, it will only cost him seventy-five dollars a year to put the 401k in place. All that was left for him was to follow the template they provided for his investment choices.
It’s true. You can save hundreds of dollars a year, maybe even a few thousand, by investing on your own. The tools and technology available to the individual investor are far superior to anything that I could tap into all those years ago on the trading floor, but before you toggle onto that investing site and make the pie chart spin and churn its colorful display, please take a step back for a moment.
The one thing we all learned in the past five years, well maybe twelve years, is this hard fact. You are on your own! It’s hard to think of one financial company that hasn’t failed their clients in some way over the last dozen years. So yes, you are on your own.
Knowing this truth requires you to do some work. It is not an overstatement to say that the way you invest in your 401k or IRA could be the single most important decision you could make for your future. If you take the tech trade-off and do it on your laptop or through your phone, you will do it alone. This is not the forum for me to advise you on how to invest, but I will offer a word of advice. Ask!
Ask if the template on the screen is based on enough information. What does “hypothetical illustration” mean exactly? Have the investments in the illustration been in this “hypothetical” for the entire time frame shown? Is there downside protection? Ask yourself if there is someone to ask these questions of.
When did we get to the point that recommendations on a screen became so compelling it has convinced those whom log in they can do the job of a financial professional? As a financial professional myself and a former Options Trader, I have a good idea. These pie charts and hypothetical stem from the theory that “if it can be quantified it can be commoditized.”
This is the idea that has revolutionized our world by cutting out the middle man or in this case, the broker. You can plug in your time frame; age and risk tolerance and Viola you have a plan. This is a fine theory and works in most cases for booking a hotel room, buying a book or planning a vacation. This is not a theory fit for long-term financial plans. This method is akin to self-diagnosing from a medical website. The information is available at your fingertips but can you be honest and objective enough to come to rational conclusions? From what I’ve seen in my practice the answer is a resounding no. A solid plan cannot be quantified like inventory on a shelf or an empty hotel room. This is your future. This is not about a price point derived by an algorithm. It’s your money, ask questions.
I know that by discounting or dismissing the power of the internet, I run the risk of sounding like the guy who refers to a collection of music as an album, someone who still says mobile phone or World Wide Web, but this is something deeper and more important than a discounted execution.
This is about your retirement, your children’s college. It IS your album, your masterpiece.
This is Sergeant Pepper, Songs in the Key of Life or Born to Run. So dust off the vinyl. Slide it into the sleeve and file it away for safe keeping. It is your future, take care to preserve it.