State College, PA – It seems in the last few years, there has been a strong push in the financial arena encouraging people to “Do-It-Yourself”. The idea that with technology and the availability of information, people can have access to low broker trade arrangements to set up their portfolios and allow a computer to automatically monitor them. Sounds great in theory, but does it really work? The idea of “Do-It-Yourself” Investing is to cut out a level of expense, the advisor and the human factor. The result being lower-cost trades that are cutting out an area of potential human advisor costs, in a situation where computer will do the work.
The financial industry giants are betting a lot of money that they can sell the American public on the perception and the illusion that they are in control of their own financial situation. Rather than, understanding how true wealth is created and the basic rules of investing: own equities, diversify globally, and rebalance.
The challenge is humans still rule the computer and the ability to access and change investments based on the social political economic climate. Does the social political economic climate really have a bearing on long-term investing?
According to many Nobel Laureate‘s in finance and economics, the answer would be NO! The data clearly shows the short-term volatility that is created by the news of the social political economic environment is nothing more than noise and ripples in the market.
The challenges are that people are being given a deluge of information as well as access to Internet investment trading platforms. That should be good right? Well no. The result is that people have the illusion of control. They believe their deciphering of the news may lead to wins down the road. That would then cause them to act imprudently and make trades based on feelings or gut reactions. The data is clear, especially, when you look to the field of study known as investor behavior. Humans left to their own devices, are their own worst enemy. This is true in so many areas of life, but especially in the area of finance.
Think dieting! Two simple rules; 1) Eat less 2) Move more. Living a healthy lifestyle is a multibillion-dollar industry. Can you get up at 2 AM flip on the television and not see some type of health-related infomercial on TV? Humans need discipline, we need direction, we need encouragement. This is the nature of the human condition. People pay for personal trainers and people pay to go to their doctors just to get yelled at and tell him to get on an exercise program. You can go on and on and on. This should not be different for the financial services industry! Most information creates an overload or a paralysis of analysis.
There is not a lack of information available today, instead, there’s a lack of clarity and direction.
I personally don’t think “Do-It-Yourself Investing” will ever understand the nature of the human condition. When we look at how much time and money people spend on chasing dollars and then look at how little time most people spend learning about finance investing, it becomes very clear that we need a coach! Anyone that would say they do not need a coach must have some kind of system that offers them the confidence to make such an outlandish statement.
As a fiduciary and the president of a registered investment advisory firm, I often think of the Latin saying “caveat emptor” which translates to, “Let the Buyer Beware”. If you want to gamble, go to Vegas or Atlantic City. When it comes to investing, own equities, diversify, and rebalance. This is a lifelong endeavor. Can you quantify financial peace of mind? Only with education do we derive clarity. Only with clarity, is there an environment for confidence. Only with confidence will one ultimately reach peace of mind. Can one really quantify the value of peace of mind?