Handing over the Keys
This week I’d like to share a personal lesson that I learned by comparing the choices of an existing client and someone who was unwilling to pay for investment help. This was such a real life contrasting example of someone who understood the value of advice and the other who didn’t.
It was sad so see one of my clients recently move into a nursing home. This client is very wealthy and has done a tremendous job saving throughout life. He was more of a do-it-yourselfer and planned well for anything that life threw at him. The book the Millionaire Next Door was written with him in mind. I had another meeting with an elderly gentleman who was not a client that had done everything well in life, but couldn’t give up control of his investments.
The best move that my client had made was hiring a team of financial experts before he became ill. He was willing to give up control of his finances. He hired an accountant for taxes and a Chartered Financial Analyst (me) to manage his investments. My client researched and assembled his team well before he became sick and found the experts that he believed would carry on the types of financial decisions that he would have made for his family.
The elderly gentleman that went down the wrong path didn’t want to give up control and was unwilling to pay for advice. There are many people that become better investors as they age like a Warren Buffett type, but most will lose interest and begin to make unwise investment decisions. I wanted to write on this subject because this is now the second person that I met with that made this mistake. We all know an elderly family member or a friend that had to fail an eye exam to give up their freedom to drive. At least there is an eye examination test to determine whether someone can still see the road. For investments, the money will be long gone before you figure out that you have lost your cognitive ability. It makes a difficult situation even worse when the spouse is left with almost nothing.
I cringed when I reviewed all of the poor investment decisions that this elderly man had made and I felt terrible for the spouse who was left with a broken nest egg. My general advice is if you don’t know what you are doing, then buy a CD or the S&P 500 index fund. You can’t find any better combination of investments. Do not invest in individual stocks unless you closely follow the company earnings calls, read financial publications, and closely watch the news. Contrary to belief, buy and hold investing does not work well for individual stocks. It only works for investments in the S&P 500 or another similar type of broad based indices. Most of the nifty-fifty stocks of the 60’s and 70’s are long gone. This advice that I give to buy an S&P 500 investment is more to the masses who don’t want to pay for any help. It’s very similar to Warren Buffett’s advice to buy only the S&P 500, but he hasn’t invested $1 of his own money into it. He hired two portfolio managers to manage his money when he is gone. Most people who don’t follow markets or don’t want to pay for advice should buy an index at the minimum.
I would much rather pay for advice from a qualified advisor. If something happens to me, my wife will receive the same investment help from the advisor that I have selected to help my clients as part of my business continuity plan. This advisor shares the same investment philosophies as me and views risk-return much the same way. The key is finding an advisor while you are healthy so that you can follow their investment decisions as markets change so that you can confirm your choice. As my clients well know, I enjoy communicating all of my investment decisions and partner with them on any important portfolio decisions.
I realize that many of the people that read my posts are existing clients and have already made their wise choice in advisor. 🙂 However, I thought if I could help save even one person from the type of losses that I reviewed from someone who was unwilling to give up the keys to their portfolio, then I would have helped save a spouse from losing everything.
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