Advisors: Plans, Not Fads

Will you ever stop underperforming your own investments? The rollercoaster market naturally spurs you to chase trends and lose sight of what you really ought to do: Stick to a well-advised plan of long-term payoffs and goals.

Your best first defense is an objective eye, preferably from a third party. “Find a financial adviser who favors a handful of highly diversified funds rather than a jumble of narrowly focused, volatile funds,” writes Jason Zweig in The Wall Street Journal. “Make sure (your advisor) tends to hold on for at least three years at a time. The simpler, smaller and smoother your collection of funds, the more likely you are to do as well as they do.”

How about a market-based indexed approach, where you may keep the funds for the rest of your life and ride the market’s average long-term ups and downs automatically? The mixture of funds helps you adjust risk exposure slowly as you age.

“Good advice rarely changes,” writes Zweig in another article, “while markets change constantly. The temptation to pander is almost irresistible. And while people need good advice, what they want is advice that sounds good.”

The problem? Often people want what’s not good for them, like children wanting too much candy instead of accepting the need to eat broccoli. With a prudent financial plan and a proper structure of supporting resources, you usually come out further ahead than if you chase market fads.

Focus on what you try to do with your money and not on trends and noise that distract and pull you off track. As I once wrote, if you think you pay your financial advisor to get you returns that always go up against the currents of markets, the economy or both, then you probably throw your money away.

Good returns as the goal, rather than saving more, may work if you’re younger than 45. To reach a goal after that age, save more as the goal itself.

Consider: Compounding’s final benefit comes at the end of a saving period; waiting to add money shifts both the beginning and the end of your saving time to your older ages. That means you don’t get the compounding effect at the end, because at older ages you’re supposed to retire and start spending the money you saved.

For example, saving from age 25 to 65 means you have 40 years of saving and compounding. Waiting until you turn 45 to start saving means you only get the first 20 years’ benefit, not the last 20 when compounding really begins to kick in.

Another derailment danger to your best-laid plans: emotions. A good plan, carefully laid out with objective help, walks you through simulations so you make rational decisions well before emergencies. Emotions also torpedo goals through driving you to time and outsmart the market.

You pay an advisor to help with a good plan, with clear decisions made during good times precisely for the inevitable poor times. If you pay for investing advice alone, you miss out on what quality advice really looks like.

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Larry R. Frank Sr., CFP, is a Registered Investment Adviser (California) in Roseville, Calif. He is the author of the book, Wealth Odyssey. He has an MBA with a finance concentration and B.S. cum laude in physics with which he views the world of money dynamically. He has peer-reviewed research published in the Journal of Financial Planning.

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