The best way to manage a personal investment portfolio starts with a complete picture of assets and liabilities.  The greater the net worth, the more potential worth good portfolio-management advice offers.

For a given net worth, investment advice is most useful to investors who exhibit any of the following:

  • disinterested in investing
  • lack knowledge about certain types of investments
  • lack knowledge about the tax-implication of investment choices
  • are undisciplined in their investment approach
  • overestimate returns, or underestimate risk or risk tolerance

Here are a few examples of experiences of the above-type investors.  Keep in mind that most exhibit more than one of the above traits.

Disinterested Investor

  • Has not changed their 401K from its default 3% contribution to 100% money-markets.
  • Has a broker who trades for them, yet has no idea how their investments have compared to the S&P 500 Index  
  • $100,000 in their bank account because they are too lazy/indifferent to invest it
  • Doesn’t rebalance

Ignorant Investor

  • Only owns cash and CD’s because they don’t understand stocks, ETFs, or mutual funds
  • Trades individual stocks but doesn’t know what a P/E ratio is 

Tax-Ignorant Investor

  • Holds tax-exempt muni-bond funds in a 401K or IRA
  • Holds annuities in a 401K or IRA (for no good reason)
  • Doesn’t know about qualified dividends
  • Doesn’t consider tax consequences of unrealized gains in ETFs and mutual funds

Undisciplined “Investor”

  • Chases trends like the tech bubble.  Extremely undiversified. Often losing big money 
  • Day traders. Eventually get burned.  Then out of the stock market all together.  Then finally back in only to buy into a market top.
  • Doesn’t even know how much they’ve made or lost

Irrational Investor

  • Expects 12%+ market returns. Surprised when markets fall.
  • Thinks they can tolerate a 40% correction, then sells in panic near the market bottom when such a correction occurs

The unfortunate truth is that the vast majority of investors I’ve encountered harbor at least one of the above investing flaws.  Many of these people make 6-figure salaries.  It appears that being a complete investor is a rather rare trait.  For these reasons good investment advice can be very valuable to the majority of people who are “incomplete investors”.  In many cases %1 of net investment assets or $495 for a two-hour consultation can be quite worthwhile.

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