When the markets take a nose dive, it makes the financial “advisors” look like they don’t know what they’re doing, because they have been telling people to “stay invested no matter what” – and yet, average investors find themselves treading water, as the increases erode with just a few days massive declines. The problem is that this advice is intended to help everyone except the individual investor. The financial advisors are selling the product. They make money when you first invest, and after that, they don’t care much. Except for when they can tell you to invest in something else, and they make money again. Their fortunes are not tied up in whether you make money in the stock market or not. True, you may decide to move your account as a result of bad advice, but the advisors at the next firm you go to have the same motives, the same results, and the same product as the advisor you are seeking to leave.
The only way to really protect your finances is to invest yourself using a self-directed account. Whether you have a self-directed individual account, a self-directed rollover 401k account, a self-directed custodial account, only you have your own best investing interests at heart. Many people who put money into mutual funds and other products – who are not truly “investors” as will be explained below – don’t want to hear that they have to learn how to invest. But the sobering fact is, even if you choose not to invest your own money in a self-directed account, and prefer to give your money to someone else to invest it, you need to understand the markets and know how to invest so that you can make sure your broker is doing the right thing. You won’t know that if you don’t understand investing.
I’ve heard people say “I don’t want to know all the details of how to invest in stocks, so I hire a professional.” Well if you have less than a$250,000 to invest, real professionals, who operate on a fee-only basis, are not going to want to work with you. There is no profit in it for them to have dozens of investors who only have $5,000, $10,000 or even $50,000 to invest. The reason is, they get fees that are high enough that it eats into your returns, and they can’t show you a decent return on your investment after you deduct the costs of using their services. And small investors are more likely not to want to pay fees in the hundreds of dollars to get advice anyway. So if you are rich, you can afford to hire a professional. The rich are not in the position of being concerned about saving what’s left of a very small nest egg.
So where then do you invest if you want to have a self-directed account? The idea is, you invest then in vehicles you understand, and that you learn how to trade. In the beginning, this may mean just a money market fund, or a government bond fund, something conservative which is easy to grasp and where you can park your money relatively safely while you learn more. From there you can graduate to investing in index funds, but using ETFs instead of mutual funds, as they are cheaper to trade, have no minimum balance requirements (like the $3,000 minimums you’ll find as some fund companies) and they don’t have the same fees and taxes.
At some point, you may even learn to buy stocks, and there is nothing wrong with doing that, if you learn how to do the research, follow the market, and are ready willing and able to make trades that aren’t just based on emotions, but a solid financial plan. There are plenty of good sources of information about how to invest in stocks, from broker resources to books, to entire publishing companies that put out nothing but investor information.
The point is you are going to take it slow, at your own pace, to learn about what works for you, and understand how your money is working for you. You are not then at the whim of some advisor and their desire to make money for themselves. You don’t have to be anxious about not knowing what is going to happen to your hard earned money, and what exactly it is invested in. You can relax, and plan your future around a financially stable plan, and know that you have the skill to take care of yourself financially.