Every year Paladin provides education to thousands of investors who use the services of financial planners, financial advisors, and money managers. Our experience shows 90% of these investors need a New Year’s Resolution that we call “Get Involved Before It Is Too Late”.
It is easy to turn all of your investment work and decision-making over to financial professionals who claim to be investment experts. They actually volunteer. Delegating work and decision-making make a lot of sense for most investors. That’s because it is a lot easier to select a financial advisor than it is to learn to do the advisor’s job yourself.
You can delegate work and you can delegate decision-making, but you cannot delegate two critical decisions. The first decision is the professional you select to be your financial advisor. The second decision is retaining your current advisor for the right reasons. In other words, only you can hire and fire advisors.
How about the following for a New Year’s resolution? “I am going to become more knowledgeable about the three biggest investment issues that impact the achievement of my financial goals: Investment performance, investment expenses, and investment risk”.
Who Does the Work?
Being more involved does not mean you start doing your advisor’s job. Involvement does mean you increase your knowledge about performance, expense, and risk. This increased awareness will pay huge dividends down the road when you have additional assets for your retirement years and other financial goals.
Who Has Control?
Your financial planner or financial advisor does the work, for example research investment alternatives, and makes recommendations or decisions. However, you control your relationship with the advisor. The most important decision you have to make is the retention of the advisor for the right reasons – competitive performance for reasonable risk and expense.
The biggest question you should be asking is whether you are receiving competitive absolute and relative performance. Absolute returns are what you receive after all expenses are deducted. Relative performance is your results compared to a benchmark that reflects your tolerance for risk. You can monitor your advisor’s performance using a Paladin Benchmark that matches your tolerance for investment risk.
The financial service industry has developed layers and layers of feesthat are deducted from your accounts so they are less noticeable. You should be extremely aware of these expenses. Every dollar of expense is one less dollar you have for reinvestment and your future use.
Investment risk is complex, unpredictable, and it can wreck your financial future. Just ask the millions of investors who are still recovering from the 2008 meltdown. You should monitor your exposure to investment risk the same way you monitor your investment expenses.