Saturday, September 8, 2012

Conversations With The Distraught

Acquaintance: Hi Jon.  It’s been a long time.  It looks like things are going well.  I just ordered your book.  Congratulations!

Me: Thanks I appreciate it.

Acquaintance:  I was wondering if you could look at my investment statements for me?

Me:  No.  Why would I look at your statements?  They aren’t my investments.

Acquaintance:  I know but my accounts have not done very well and I don’t know what is going on.

Me: Are you working with a financial advisor?

Acquaintance: Yes.

Me:  What is your advisors philosophy?

Acquaintance: I don’t know.

Me: What is his or her methodology?

Acquaintance:  I don’t know.

Me:  So you wake up every day not knowing why your money is invested the way it is or what your investments are designed to do for you?

Acquaintance:  Yes.

Me:  And how much do you pay for that?

Acquaintance:  1% a year.

Me:  Of your total assets?

Acquaintance:  Yup.

Me:  And how much in dollars is that?

Acquaintance:  Around $6000 a year.


I shared this conversation with you today because it is one of the primary issues I address with subscribers to my Allocation For Life newsletter.  That issue is to know what you own and why you own it.  This conversation was not unique.  Many investors who have not taken the time to learn how to invest often hand their dollars off to a financial advisor, and end up not really knowing what they own and why.  This is not an indictment against financial advisors.  I know many advisors who can easily translate their philosophies and why they make the suggestions that they do to clients.  On the other hand I have also met many advisors who do not have a philosophy or method behind their madness.

Conversations like this illustrate the importance of taking responsibility for your investment decisions and investments being made on your behalf.  I can clearly explain why and how every investment dollar I have is invested the way it is.  My methods have been well documented both in my book and in the investment newsletter I author.  My models are even available to subscribers at Folio Investing.  However, those investors that own my models in self-directed accounts at Folio and subscribe to my newsletter have taken personal responsibility for their investments.  They have simply found a philosophy that they understand and they wake up each day knowing what they own and why they own it. 

The conversation above was with a very intelligent hard working woman.  She has a high stress career and makes very good money for that stress.  She simply admitted that she lost her way.  The busier she became the more she did not have time to keep an eye on things and thus felt the need to use an advisor to do that for her.  In many cases that is a correct decision, but the lesson to be learned is that as an investor you still need to take the time to educate yourself and understand how your money is working for you.  In this case it was not working too hard.  I believe most of us have the ability and common sense to seek our own philosophies, and that it does not have to cost you 1% of your total assets per year to do so.  At the end of the day the burden falls on us to be able to clearly define our own investment decisions.


Thank you and good luck everyone.
Jon R. Orcutt, founder of Allocation For Life, is an asset allocation strategist and author of “Master the Markets with Mutual Funds: A Common Sense Guide To Investing Success”; Manager/Creator of the AFL Model Portfolios available for members of Allocation For Life in self-directed accounts at Folio Investing