I was fortunate enough to have been a financial advisor in my former career. Why do I say fortunate? Because all those years of working with and listening to my clients has given me a passion for understanding what motivates people, how they invest and why so many of us “get in our own way” when it comes to making the right choices.
The men and women who came to me for guidance were also some of my best teachers. Whether it was inertia, a lack of confidence or too much confidence, what I saw over and over was that people often let emotions or unexamined patterns of behavior take them in the wrong direction, even if they rationally know the right thing to do. (My colleague Nelli Oster has written a lot about this all-too human tendency.) In my experience, being a successful investor starts with understanding what drives you, specifically, and using that knowledge to move toward your goals.
In other words, all investing is personal.
That’s exactly what I’ll be writing about in these posts. Expect to see practical information and insights covering a wide range of topics – from small steps that keep your plan on track to how to avoid the traps of outdated thinking. My goal is simple: to make you a better investor.
Let me start the conversation by sharing a few observations, and the lessons you might take away from them.
Lesson #1: Question your assumptions. In early 2000, I had client who was a technology engineer. When we sat down to review his portfolio, I cautioned that his stock holdings were highly concentrated in tech. As a professional in that business, he waved off my concerns. “I’m diversified,” he joked. “I’ve got hardware, software and internet stocks.” A month later, no one was laughing. Over-confidence at the expense of your investments can be devastating. It’s important to poke holes in your assumptions. Ask yourself, “What do I really know about what I own? What happens in the worst-case scenario?”
Lesson #2: Long term, the market is your friend. It’s a familiar situation. You’re on a plane and your seatmate asks what you do for a living. Ten years ago, when I answered that I worked in financial services, I would brace myself for the barrage of questions – about the market, this or that fund, what’s “hot,” and so on. Today, with stock markets once again at record highs, no one is asking. People who went through the crisis are (rightly) more cautious, but sitting in cash has a long-term cost, in that their money is losing value even at today’s low inflation rates. While you should always have cash on hand for current expenses or emergencies, staying in the markets – and finding ways to manage volatility – is likely to be your best bet over time.
Lesson #3. Making a plan is more important than making money. I had two clients who couldn’t be more different from each other. One was a real estate developer who earned a staggering amount of money, which he spent freely, reasoning he would always make more. The other was a longtime school teacher who did her best to make ends meet. Instead of spending whatever was left over, she systematically invested it for the future. Guess who retired with $2.5 million in the bank? A+ if you picked the teacher. Remember that you are in control of your investments – take action, make a plan.
More to come in the weeks and months ahead. In the meantime, I’d love to hear from you. What worries you (or doesn’t)? What do you wish you knew better? Share your successes or your missteps, and how you fixed them.
Heather Pelant is Head of Personal Investing for BlackRock and is a new contributor to The Blog.