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Friday, February 21, 2014

Investing: simple but not easy

As Warren Buffett said, investing is simple, but not easy.

The concepts are simple to understand, but executing those simple concepts isn't easy.

People shoot themselves in the foot by paying too-high fees, trying to time their entry and exit from the market, and by picking lousy advisers.  Our psychology makes us our own worst enemy.

Instead of doing the homework necessary to get and stay on the right track, most want short-cuts.  Those short-cuts lead to a ditch.

When picking an adviser, the most important thing to know is their character.  Not their credentials, not their schooling, not even their knowledge.  Smart people with bad character are just better at ripping you off.

How do you know a person's character?  It's not easy, but it is simple.  Look at how they are compensated.  Find out if they follow their own advice.  Talk to their current and former clients.  Are they willing to admit their own mistakes?  Are they forthright, or evasive?  Does such homework take some extra work?  Yes.  Is it worth it?  Yes.

If they have credentials, are those credentials legitimate?  Seeing that someone has some letters after their name is not due diligence.  Some programs are a sham done over a weekend.  Others take years and are excruciatingly difficult to get through.  If you don't know the difference, how do you know how your money will be handled?

What is an adviser's investment process?  Can they explain it, or do they talk patronizingly to you as if you were a 5-year-old?  Does it make sense to you, or does it sound shady?  If you don't know how they do what they do, then you'll panic at the first difficulty--and there will always be difficulties.  

Respecting and admiring your investment adviser is important; thinking that you'd like to spend your free time with them isn't.  You aren't looking for a buddy, you're looking for sound financial advice.  If you want a loyal friend, get a dog.  Nothing is more likely to prevent you from reaching your goals as not wanting to hurt a friend's feelings.

Be objective in this process.  Pick character first, check up on an adviser's background, know and agree with their process at some level, and pick someone you respect over someone that seems oh-so-nice.

Reaching your financial goals is too important to take short-cuts.  Do the work, reap the benefits.  It's not easy, but it is simple.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

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