Care to guess what the single most important thing in your life will ever be? Psychology. It's how we think, and it permeates everything, including saving and investing.
Here's how the story – the one playing out in our heads in regard to money management – usually goes:
"Right now I'm alive. That's all that matters. I work 50 or so hours a week with plenty of time to play. That much work means I get paid enough to buy stuff like groceries. Checks go straight into my account from the company. I don't control the company and I can't really control a planner or a broker either. I’m only doing this because it’s what you do. I'll just fire them if they're not a lot better and cheaper than my neighbor's guy. The end."
But here’s what we should actually be thinking:
"Right now I'm alive. Someday I won't be. Before then, I will stop working and play all day like a kid. I will still get paid so I can buy stuff like groceries. Checks will be from myself or the government. I don't control the government (beyond voting), but I control myself. I do it because it’s an answer to a problem I face. I can save by myself, pay a planner or pay a broker. How can I do better? To be continued."
The psychological difference? The first character lives in the moment and doesn’t control his or her destiny, while the second character plans for the long-term, staying open-minded to positive change. And since we should try to emulate the latter, we should also address his or her question: “How can I do better?”
The answer: Try to eliminate all objections.
For example, moving bank and investment accounts is one huge objection for many people. But to be fair, everyone needs to earn a living (unless they were born rich), and brokers and planners typically get paid only if your money is in "their house.” The commission guys get a percentage of every trade they recommend to which you agree, while the "fee-only" planners get a percentage of your entire account, regardless of whether they actually do anything. In either case, they need the money.
Access to your accounts is another big objection. Once you move them to a planner or broker’s house, he or she will have the right to trade investments inside. This, in turn, often boils down to you paying someone to do something that you don't fully understand, when you could save money and learn something in the process without that individual.
If only there was a better way…
Imagining A Perfect Planner
What if your planner told you to leave everything where it is and simply give him or her a list of your holdings? Remember that first objection: account switching?
That alone would be pretty revolutionary. But what if your planner went on to say that you’re going to be the one doing all the trading.
Here’s where that inner voice begins to race.
"Brokers get paid by the trade or based on assets under management, but this one isn't going to trade or take control of my money. What gives?
“I mean, it would be nice to get an unbiased second opinion whenever I need it, and maybe I can set up occasional complete reviews of my strategy to make sure I’m on the right track. It doesn’t hurt to dream, right?
“But you ultimately get what you pay for, so am I really going to get all that from some do-it-yourself place? I guess I could use one of those robo-advisers that automate investments based on algorithms and my desired level of risk (and rewards). That’s pretty hip; they probably won’t even ask if I have a fax machine. That could be OK, but I really want more guidance.
So let's regroup for a second. I don't want to pay commissions. Dozens of well-meaning people suggest going the "fee-only" route, in that case, but my advisor could get paid to do nothing. And the idea that conflicts of interest are fine when everyone knows about them just bugs me. But I don't want to pay an asset management fee, either.
It would be really amazing to find somebody who doesn't get paid by any product (only by me), doesn’t make me move my money, has zero access to my account and charges an hourly rate only when I need help.”
Dreams CAN Become Reality
For those who think such an arrangement is but a dream, wake up. That's exactly what I, and a handful of other financial professionals, do: Put you in complete control of your destiny, providing insight and support, not commands and conditions.
But the real moral of this story is that dreams can indeed become reality, both in terms of your financial future and the means by which you plan for it. So think like a champion when it comes to money management, don’t compromise unnecessarily and allow your positive visualization to lay the foundation for a richer tomorrow.
John Brandy is a Financial Advisor who helps clients understand difficult financial tradeoffs, diversify their assets and start a business.
Image: katrinaelena / iStock.