The Price of Advice

Last week, I wrote about our inevitable duty to respect certain laws of economics should we decide to pursue wealth.

The post was inspired by a more extensive study of investor behaviour, written by Dr. Daniel Crosby.

The very first page of the article mentions the fact that “an Aon Hewitt study found that investors who worked with advisers during the Great Recession did 2.92% better net of fees than those who did not.”

I should mention here that in our modern age, we easily confuse opinion with fact and vice versa. A perfect example was a statistic offered by Dr. Crosby, himself, on his LinkedIn feed. He wrote that approximately 85% of Americans earning more than $150,000 annually have a bachelor’s degree, ultimately providing an incentive for young people to stay in school. One of his connections commented that the information was skewed and the data he had used was limited.

It’s true: Dr. Crosby’s data was limited, because data will always be limited as long as it’s handled by finite minds in a finite world. And whether or not the information in the post was skewed, studies across the board have concluded, time and time again, that people with college degrees fare better in life than those who stop studying after high school.

You may be of the opinion that one doesn’t need a college degree to succeed in life. But the fact is: pursuing higher education generally makes it easier to obtain a higher-paying job.

Similarly, too many people are of the opinion that they can manage their assets better on their own instead of working with an adviser. But as Crosby would go on to write in his article, “what differentiate[s] the DIY crowd from those who receive help has less to do with financial acumen and more to do with behavioral coaching. In all markets, but especially in times of elevated emotion, the primary good an adviser can do is to keep their clients from making impulsive decisions.”

That factual assertion goes hand-in-hand with the 1^st rule governing investor behaviour: in every, and any market, you control what matters most:

“Over the last 20 years, the market has returned an average of 8.25% per annum, but the average investor has gotten just over 4% of that. The highs and lows of the market may be out of your hands, but how you choose to behave is within your power, and is just as important a driver of returns.”

If you have been investing for quite a while now, and only seeing subpar results, it could be time for you to find someone to spot your financial exercise.

Some of my future posts will focus finding a good financial adviser, but if you have any noteworthy do’s or don’ts for spotting a good one, please share them with me!