"Some people will take you on a journey just to leave you stranded."
"Be careful who you follow—some people can’t even follow their own advice."
"Not all who wander are lost, but some who lead definitely are."
"Just because someone sounds confident doesn’t mean they know where they’re going." - Unknown
There are two stereotypes that ring true to me- these are real people that investors come across that can potentially derail their personalized financial plan. These are typically people you trust, and you have no reason NOT to take what they say at face value.
Let’s look at these two extremes through the lens of psychology, so that we can understand them and put what they’re doing in perspective.
THE LUCKY GAMBLER WHO GIVES YOU FOMO
This is the friend who always has hot stock tips, who likes to brag about his portfolio, and makes you question why your investments haven’t gone up as much as his. He may be into gimmicks or internet schemes, prone to a “get rich quick” mentality.
These people can make you question your own strategy, and provoke impatience with the pace of your portfolio growth.
Analysis: These people often selectively leave out their “misses” when bragging about their “hits.” Rather than long-term investors, they operate more like traders or speculators. While riskier investors CAN outperform the market occasionally through a handful of lucky picks, the imprudent chances they take can also be fatal to their finances.
Through the planning process we identify how much your savings needs to grow to meet your accumulation goals, as well as how to preserve capital as long as possible during the retirement/ spend down phase.
Our goal is to mitigate the kind of risk that these unguided investors are taking onboard. Ideally, they only risk what they can afford to lose, but unfortunately, that is not always the case.
On the other end of the spectrum, we meet another familiar figure…
THE EX- INVESTOR WHO THINKS THAT INVESTING IS FOR SUCKERS
This friend once (or twice) had such a bad experience investing that he is doing you a favor by telling you to avoid it altogether. This friend may have “lost it all” during the 2008 financial crisis, had to go back to work, lost his house, or knows people who did. His emotional story is scary - he is just looking out for you!
Analysis: While no doubt there are many people who panic and sell their investments at the worst possible time, or had to because of other circumstances, many plan-driven investors make it through economic downturns and bad markets just fine.
Is it possible that, deep down, it adds to his pain seeing others succeed where he failed?
We can show these unfortunate investors some sympathy, understanding that sometimes that it is just too painful to think about our own mistakes, so we rationalize that something happened TO us, rather than we did it to ourselves.
These are the people who motivate me daily to teach financial literacy and the importance of financial planning.
A lack of financial education is often the biggest impediment to financial success. Uncertainty can make us fearful, while knowledge and planning can give us confidence.
We know markets are cyclical; that they go up most of the time, and occasionally but temporarily they go down. During these temporary downturns, we stay invested to continue compounding our dividends and interest, because we know it isn’t possible to time the market.
We know that we invest in well-run, profitable companies that we are familiar with, and we don’t gamble on anything that we don’t understand or has no economic purpose.
We invest in hundreds of these companies, so that while we may not make a killing, neither will our portfolio be killed. We balance market risk with the real risk of outliving our retirement assets.
This year I challenge you to be the most financially literate investor in the room. By staying informed, patient, and focused on long-term financial planning, we can avoid the extremes and make smart, confident investment decisions.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
Securities and Retirement Plan Consulting Program services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC. Investment Advice offered through Western Wealth Management LLC, a Registered Investment Advisor. Kennebec Wealth Management LLC and Westen Wealth Management LLA are separate entities from LPL Financial.