Key Takeaways
Knowing what you don’t know is just as important as what you do know.
Make sure your “advisor” takes the time to get to know you well, including your values, risk tolerance, goals, and family situation. Don’t settle for a cookie-cutter “planning” model.
A fee-only advisor is best equipped to keep your big picture in mind and will help you in areas beyond investing.
Conventional thinking is that age brings wisdom. But as I get older, I’m amazed by how much I still don’t know about life, health, and yes, even about money. As many of you know, I’m passionately committed to lifelong learning. During my reading, I recently came across this quote from Confucius – “To know what you know and what you do not know, this is true knowledge.”
I wanted to share this with you because many advisors often believe they can help plan your future and manage your investments without truly getting to know you. They frequently shift into “Advice Monster” mode before you have finished explaining your concerns to them. That’s not our approach here at Novi. As holistic advisors, we take the time to learn as much as possible about you, your family, your values, passions and causes that are most important to you. No two client journeys are the same, so we avoid using cookie-cutter solutions. Since we work with a smaller number of clients compared with advisors at larger financial institutions, we have the time to conduct a deeper level of discovery.
Curiosity is part of our DNA. We're constantly learning and gaining new insights about ourselves and our longtime clients. I’ve always advocated knowing what you know vs. knowing what you don’t know, it is called humility. That philosophy has helped me in school; it’s helped me in parenting; it’s helped me in marriage and certainly, it’s helped me when collaborating with clients.
I’ve learned over my career that it’s much easier to acquire new knowledge when you “acknowledge” to yourself that you don’t know everything about a subject. When I was younger, there were many things I thought I knew, but as I gained more information or looked at those things from a different perspective, what I thought I knew started to change. This mindset was a revelation for me. I was familiar with the three elements of the wheel above. A new realization for me was a fourth element: “You think you know it, but oh how wrong you are.” It takes a lot of humility to acknowledge you are wrong and then do something about it.
Expanding On ‘Know What You Know’
Do you remember your first introduction to the stock market? For many, it was a high school project where you’d, track them through the semester, and maybe even win a prize for the best portfolio.
That was the extent of my financial literacy growing up, and now my kids are doing the same project in high school. Unfortunately, not much has changed. This is not an effective way to teach young people how to grow wealth and make sound financial decisions.
Many find it challenging to do the in-depth research necessary to pick the right stocks, the time commitment can be intimidating. Conflicting advice from media pundits on investing and interpreting the markets can be overwhelming, leading some to seek shortcuts. This can result in buying and selling at inopportune times, eroding wealth, or holding too much cash.
However, some individuals approach this with a deeper understanding. Because they don’t have the time, knowledge, or confidence to make investment decisions, they seek out financial professionals to help them. In short, they’ve separated what they know from what they don’t. That’s a good start.
Due to the limitations of early financial education and the influence of traditional and social media, many people choose the path of least resistance. Often, they end up with an investment advisor who aligns with their existing beliefs - which brings us back to my fourth point. Recognizing that wealth management involves more than just picking stocks and timing the market is a significant advantage. Embracing a small amount of humility and seeking a Fee-Only Comprehensive advisor can lead to a better experience and outcome, often at a lower cost.
There are a lot of people claiming to be experts who are more than happy to help with your
investments. Too often, folks tell the investment advisor: “Great. You take this over for me.” However, they don’t know whether those stock picks or other investment recommendations made by the “experts” are appropriate for their goals, risk tolerance, and stage of life.
They have no way of knowing if the investment advisor is doing a good job for them other than looking to see if their account is growing or declining. If the advisor does not get to know you, really know you, how can they invest properly for you?
Most people don’t understand that you can get a more integrated approach to managing your wealth than simply hiring a portfolio manager at a mainstream financial institution and paying them 1.5% a year on the money you’ve entrusted them to manage. Even more troubling, at the end of each quarter or year, they don’t provide useful metrics for measuring the success of your investments relative to goals. Often, you’ll see nothing more than your account value compared to the Dow, S&P, or Nasdaq returns. Again, a comprehensive fee-only advisor is likely to provide a much better experience.
When meeting with your wealth advisor, focus on the big picture rather than just homing in on your investments. Make sure they explain to you the broad possibilities you have regarding your wealth and finances. So, if you're open to that approach, and have found someone you trust to guide you through the process, you can come out on the other side with confidence and a good financial position.
Going back to high school stock-picking projects, one concern I have is that they encourage students to take an enormous amount of risk to achieve outsize returns in a noticeably short time. Teenagers can take more risks because they live at home for free. They don’t have to worry about paying a mortgage, buying groceries, paying off student loans, or building up a rainy-day fund for household emergencies, car repairs, medical procedures, and of course retirement. It’s easy to stock pick when there’s no downside and you’re playing with “house money.”
Even so, the student(s) who came out on top in the fall semester, typically find themselves at the bottom of the class in the spring semester, even though they used the same stock-picking approach. It’s strikingly like the experience of professional stock pickers and active managers, where success often hinges more on luck than skill.
That all comes back to having the humility to change your perspective from I know I know it to, I know I don’t know it.
Conclusion
I will continue to expand my knowledge and share insights with you. Whoever you choose to guide you, make sure it’s a firm that takes the time to understand your situation and applies years of knowledge and experience to provide you with a long-term plan designed specifically for you by a fee-only financial planner and NAPFA member.
If you or someone close to you is unsure about the advice you’re receiving, contact us any time to discuss. We’re happy to help.
ROBERT B. DUNN, CFP® is the President and Managing Partner of Novi Wealth.
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