What kind of role can a financial professional play for an investor? The answer: a very important one. While the value of such a relationship is hard to quantify, the intangible benefits may be significant and long lasting.
A good financial professional can help an investor interpret today’s financial climate, define goals, and assess progress toward those goals. Alone, an investor may be challenged to do any of this effectively. Moreover, an uncounseled investor may make self-defeating decisions.
Some investors never turn to a financial professional. They concede that there might be some value in maintaining such a relationship, but they ultimately decide to go it alone. That may be a mistake.
No investor is infallible. Investors can feel that way during a great market year, when every decision seems to work out well. In long bull markets, investors risk becoming overconfident. The big-picture narrative of Wall Street can be forgotten, along with the reality that the market has occasional bad years.
This is when irrational exuberance can creep in. A sudden market shock may lead an investor into other irrational behaviors. Perhaps stocks sink rapidly, and an investor realizes (too late) that a portfolio is over weighted in equities. Or, perhaps an investor panics during a correction, selling low only to buy high after the market rebounds.
Often, investors grow impatient and try to time the market. Poor market timing may explain this divergence, according to financial research firm DALBAR.
In 2018, the average equity fund investor lost twice as much as the S&P 500. In January of 2019, investors were buyers again for only the 4th month out of the last 20. The average investor bought into an 8% advance in January and managed to outperform the S&P 500 by 0.57%. However, DALBAR, Inc. notes that a pat on the back may not be in order.
“This is a time where the average investor really needs coaching and perspective from a trusted expert. These last 6 to 8 months have been a silent killer of an investor’s portfolio. The average investor may be feeling like they successfully timed the market this time. After all, they sold during the horrible month of December and bought during the recovery of January.” said Cory Clark, Chief Marketing Officer at DALBAR, Inc. “This view can only perpetuate emotional investing and lead to devastating effects. The average investor lost a significant portion of their portfolio value in the second half of 2018 and January’s gains served only as a numbing agent to hide the sting that lies beneath.”
The other risk is that of financial nearsightedness. When an investor flies solo, chasing yield and “making money” too often become the top pursuits. The thinking is short term.
A good financial professional may help a committed investor and retirement saver stay on track. He or she can help the investor set a course for the long term, based on a defined investment policy and target asset allocations with an eye on major financial goals. The client’s best interest is paramount.
As the investor-professional relationship unfolds, the investor may begin to notice the intangible ways the professional provides value. Insight and knowledge inform investment selection and portfolio construction. The professional helps explain the subtleties of investment classes and how potential risk often relates to potential reward. Perhaps most importantly, the professional can help the client get past the “noise” and “buzz” of the financial markets to see what is really important to his or her financial life.
This is the value a financial professional helps brings to the table. You cannot quantify it in dollar terms, but you can certainly appreciate it over time.
The Wealth Management Advisors of Kirtland Financial Services value the client relationships above all else. Come meet the team, and experience the difference having a professional can make in your financial planning.
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