Not everybody has a business degree. Not everyone is a CPA. Not everyone can even balance their own checkbook. Some people are better at handling finances than others. It’s only natural that we would recognize our limitations and reach out to professionals to make our financial decisions on our behalf, when we ourselves lack the expertise.
But just because it seems like a good idea, that doesn’t mean that it is. The unpredictable nature of the stock market makes it hard to tell the difference between a professional money manager’s stock picks and monkeys throwing darts at a board and building a portfolio from that. Actual academic scholarship has been done to prove this is the case. Burton Malkiel, author of “A Random Walk Down Wall Street” talks about this more in depth. The key academic research was done by Brinson, Hood, and Beebower in the early 1900s. They found that 91% of a portfolio’s return has to do with asset allocation and has very little to do with stock selection.
Of course, you won’t see this story played out on the news or written about in the blogs. Stock picking is more exciting, and money managers will ride that wave of emotion as long as they can if they know they can make money off of it. The truth is, though, that nobody can predict the stock market. Money managers and the financial pundits that feed their industry aren’t really qualified to tell you how to run your portfolio.
1) Those who admit they don’t know where the market is headed;
2) Those who are lying.
If you can’t rely on a money manager to handle your financial portfolio, who can you trust? Well, take a look in the mirror. I would say that the person you see looking back at you is your best bet. But what if you don’t know anything about financial management or the stock market? Well, that can be fixed. The important thing, though, is that you have control over your own financial decision-making. Only you can really know what you value and what you hope to get out of life. It is absolutely imperative that you’re involved in managing the resources that can take you where you want to go.
Of course, there are people who are knowledgeable about the technical aspects of managing a portfolio. But hire someone who will help you do it, not someone who will do it for you. Hire a coach; don’t hire a manager. Think about this decision like parenting. You might look for advice from a counselor or read a book to figure out how you can become a better parent, but you wouldn’t hand your kids off to someone else to do your parenting for you. Be the parent of your portfolio.
Learn all you can from others who have expertise but, in the end, always be involved in the decision-making. If you need any help understanding how to manage your own portfolio, feel free to reach out to us for a complimentary consultation. We don’t want to make your decisions for you; we want to give you the tools that enable you to make decisions for yourself. Our mission is to get you the life your really want!