Gil Weinriech, Senior Editor for Seeking Alpha, wrote recently about investors whose personalities tempt them to stay on the sidelines of investing at times. His article and the accompanying podcast are worth reading in its entirety, but here is a good excerpt:
I am certain that many investors can get by just fine without professional assistance, but I am equally certain that another large cohort is bound to do very poorly on their own, and the difference between them is based not on intelligence, but on personality. Some of the smartest and most investment-savvy people are included in the latter group. …
He argues that advisors should encourage investors with a low tolerance for risk, loss, and ambiguity to “jump into the market,” even during a period of instability, if their time horizon is long enough.
When I opined at the top that both good and mediocre advisors have something in common, my sense tells me that a large number of readers answered to themselves that that commonality is excessive professional fees. And yet one can roughly calculate (depending on asset size) that if a brilliant, investment-savvy investor makes but a single mistake of sitting out the market and thereby missing out on a 20% move, he has thereby forgone a lifetime’s worth of advisory fees. And so, dear investor, if you have ever or might in the future stay on the sidelines, you are a candidate for engaging a professional to partner with you in the management of your wealth.
Having seen the investment strategy of hundreds of different investors, I am convinced that a good investment advisor will earn their fee multiple times over for the average investor. For many investors, one of the largest benefits is that their advisor crafts them an appropriate asset allocation and then sticks to it. Sometimes a good advisor earns their fee for life by being disagreeable and keeping a client from the big mistakes. As Weinriech suggests, hesitating to invest can be a big mistake.
Studies by Morningstar show that investors under perform the very investments they are invested in because they move money into them after they have gone up and they take money out of them after they have gone down. Others jump out of the markets entirely only to wait to get back in until after the markets have risen above where they got out.
Photo by Anthony Tran on Unsplash