The Worst Time to Be Your Own Financial Advisor

The Worst Time to Be Your Own Financial Advisor

I have always been interested in personal finance and enjoyed managing our finances. It is fun to see good performing investments and it provides comfort knowing first hand that everything is going well (read: control freak). Warren Ingram wrote a book on this, which is still on my list of future reads but the synopsis looks like it summarises my thinking on this subject.

I have met many people who would tell me: “I am visiting my financial advisor today so that he/she can tell me if I can retire”. Really? Are you basing such a big decision on someone else’s algorithm which you don’t understand the fundamentals of? That just scares me. Don’t get me wrong a good financial advisor is worth his/her weight in gold (or bitcoin, does bitcoin have a weight?). But you should have at the very least a basic understanding of your finances and retirement assumptions.

This is the worst time

Since the end of last week and the beginning of this week the markets have been a mess. As shared previously a large portion of my net worth is invested in international equities, predominantly in the US stock market with some global ETFs in the mix. I use the Yahoo Finance app to track my share purchases and their current prices which calculates my total portfolio value. This is sometimes a bad idea, because to see a large value being wiped from your “paper money” can be frightening. Just look at the performance of the S&P 500, my personal benchmark for my portfolio (which in any case includes a large weighting in an S&P 500 ETF).

Drops like these are eye watering to behold and this is why it is the worst time to be your own financial advisor. Seasoned financial advisors do not have that personal connection to your wealth and in most cases, have seen these events many times before. They can actually make better decisions than you can during these times. Especially if you are asking questions like is this the next crash or is that prediction accurate?

It’s times like these

It’s time like these you should listen to the amazing Foo Fighters and understand that these are times you that teaches you stuff. Especially if you are like me a buy and hold type of investor with a long-term outlook and not timing the market. So how should you react and think in times like these? Below is a couple of tips and snippets of wisdom which keeps me sane:

The question I always ask myself is: “how do I see the value of the specific share/ETF 10 years from now?”. And this is the same question I ask when I initially purchase a share/ETF. An example is Amazon (AMZN) which from purchase has performed very well and did not escape this bloodbath by a long shot. I still firmly believe Amazon has a lot of potential, offers a great product/service and in 10 years from now will be a very large relevant company. I have the same outlook on the US and European market that’s why I own ETF’s in both.

A good article I read in the week from Chief Mom Officer puts the recent drop into perspective and also elaborates on a very important point. What is your initial investment policy statement and are you still in line with this? If your outlook is long term like mine this will simply be a blip in the chart. The key is if you have nailed that down you should make all decisions through the lens of your policy statement. That means no impulsive decisions based on the current performance and circumstances and what seems to be information available to you. I really liked this analogy Paul Theron tweeted.

Yes, a correction was probably on the cards but in general the picture is rosy with good US jobs data, consumer spending, corporate earnings and generally synchronised world economic growth. This just shows you how irrational the market can be.

Should you still be your own financial advisor?

This is really up to personal preference. During these market events it is a good test to see if you can be. If this makes you sleep worse at night it is probably not worth it (as sleep is very important). If you enjoy being your own advisor and see these events as times where you can learn some lessons then you are probably cut out for it.

I have learned some lessons as well and will be applying them by increasing allocation into less volatile and more diversified investments in certain cases. But my investment policy statement will remain the same on my international investments:

  • Any funds moved into these investments will stay there for the next 10 years and not be repatriated to South Africa unless in an emergency.
  • Any funds moved to these investments (they are USD denominated) is not required for day-to-day living.

The rationale behind this is straight forward. I believe there is more growth potential internationally than in South Africa in the medium term. A good hedge against the local currency is also required since I have so many local assets in the form of my house and retirement funds.

So, will I still be my own financial advisor even after these losses (especially on my recent purchase of MGK)? Definitely! Even before these events I planned to in the future get more professional advice built into my decision making as my net worth expands. But for the moment it is only me and I believe my strategy is sound, so far results have been good and I am enjoying it. It also allows me to realise just how fortunate I am to enjoy this as well as having investments in the first place.

What do you think about being your own financial advisor?

Always grow your wealth for tomorrow while being content with your wealth today.

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