The best way to manage a personal investment portfolio starts with a complete picture of assets and liabilities. The greater the net worth, the more potential worth good portfolio-management advice offers.
For a given net worth, investment advice is most useful to investors who exhibit any of the following:
- disinterested in investing
- lack knowledge about certain types of investments
- lack knowledge about the tax-implication of investment choices
- are undisciplined in their investment approach
- overestimate returns, or underestimate risk or risk tolerance
Here are a few examples of experiences of the above-type investors. Keep in mind that most exhibit more than one of the above traits.
Disinterested Investor
- Has not changed their 401K from its default 3% contribution to 100% money-markets.
- Has a broker who trades for them, yet has no idea how their investments have compared to the S&P 500 Index
- $100,000 in their bank account because they are too lazy/indifferent to invest it
- Doesn’t rebalance
Ignorant Investor
- Only owns cash and CD’s because they don’t understand stocks, ETFs, or mutual funds
- Trades individual stocks but doesn’t know what a P/E ratio is
Tax-Ignorant Investor
- Holds tax-exempt muni-bond funds in a 401K or IRA
- Holds annuities in a 401K or IRA (for no good reason)
- Doesn’t know about qualified dividends
- Doesn’t consider tax consequences of unrealized gains in ETFs and mutual funds
Undisciplined “Investor”
- Chases trends like the tech bubble. Extremely undiversified. Often losing big money
- Day traders. Eventually get burned. Then out of the stock market all together. Then finally back in only to buy into a market top.
- Doesn’t even know how much they’ve made or lost
Irrational Investor
- Expects 12%+ market returns. Surprised when markets fall.
- Thinks they can tolerate a 40% correction, then sells in panic near the market bottom when such a correction occurs
The unfortunate truth is that the vast majority of investors I’ve encountered harbor at least one of the above investing flaws. Many of these people make 6-figure salaries. It appears that being a complete investor is a rather rare trait. For these reasons good investment advice can be very valuable to the majority of people who are “incomplete investors”. In many cases %1 of net investment assets or $495 for a two-hour consultation can be quite worthwhile.
Balhiser Financial 