Three Big Do-It-Yourself Investor Mistakes The media is not your friend.

It’s quite common to come across people who think they know how to manage their investments. And the fact is, some people do a very good job of it. But experience shows that competent do-it-yourself (DIY) investors are in a minority compared to the masses getting “hot tips” from friends, family, and the media. Ultimately, these tips often wind up costing novice investors dearly. In no particular order, here are three common mistakes DIY investors make that could wind up costing money:

1. “I was watching Suze Orman on Oprah and she said…”

Many DIY investors don’t realize the media is not their friend. Journalists certainly aren’t professional investment managers. Following the media’s “free” advice could ultimately wind up being very expensive! Their objective is not to inform, educate, and provide ongoing prudent advice, but to sell print subscriptions, TV and radio ads, e-mail lists, etc. Discerning investors realize this and understand the value a professional advisor provides relative to “free” advice. Why else would Endowment Funds like Harvard, Yale, and Princeton spend millions every year for professional financial advice? If hiring financial pros didn’t make sense these billion dollar funds would stop doing it. And, while hiring a seasoned pro doesn’t necessarily guarantee outstanding results, it’s nonetheless something for the DIY investor to seriously think about.

2. “I don’t need a financial advisor because I subscribe to Money Magazine.”

This is related to #1 above, but with a twist. High quality financial advisors seek long-term relationships with their clients and meet with them regularly to review and update accounts based on the unique needs of the client. Compare that approach to a DIY investor reading the following story in November 2007 on CNNMoney.com by editor Michael Spivey:

Tech stocks should lead the rebound
Leaders in the technology sector are growing fast and aren't hurt by subprime issues or soaring oil prices.

Remember, this was November of 2007. Mr. Spivey went on to recommend a variety of investments including one which, according to CNNMoney.com, was selling for a little over $28 per share at the time. Fast-forward about 16 months and the same investment was trading for a little over $13 per share in March of 2009; again according to CNNMoney.com. What’s the dear reader to do? You can be sure Mr. Spivey wasn’t taking calls from subscribers asking for advice now that they’d lost over half of their money based on one of his suggestions.

3. “I can save money by doing it myself.”

Remember the old saying, “Penny wise and pound foolish?” Do-it-yourself investors often have difficulty understanding the difference between price and value. The media has done a good job of convincing many consumers that they are foolish to pay for financial advice since it’s easily obtained for free or very cheaply. In the late 1990s, during the dot.com bubble, a TV commercial was airing where a distinguished 60-something man was cooking dinner for his wife. In between stirring his gravy and checking on the pot roast he would dance over to his laptop for stock tips and quickly execute buy and sell orders for only $7.95 per trade! Of course, hiring a professional financial advisor doesn’t guarantee investment success. Financial advisors make mistakes, too. But, a disciplined, serious approach to investing with a seasoned professional may yield better results over time than focusing on how little it costs to make trades in the portfolio.

In short, investors need to recognize that there is a cost to any kind of advice. Free magazine advice that winds up losing the reader half of their investment may not be such a good deal. And, while it may be fun to pretend that media resources are practically free, the cold, hard fact is that the media’s interests are not necessarily aligned with their readers/viewers. Engaging a professional financial advisor may not guarantee investment success, but professional fees could wind up being much less expensive in the long run compared to “free” advice from the media.

Source: http://money.cnn.com/2007/11/19/pf/tech_rebound.moneymag/index.htm  3:50 PM •  0 Comments •

Spend Time Now Planning for Your Financial Future Are you "thinking” about retirement?

As early as 1968, the co-authors of the book, Social Security: Perspectives for Reform, observed:

“There is a widespread myopia with respect to retirement needs. Empirical evidence shows that most people fail to save enough to prevent catastrophic drops in post-retirement income. Not only do people fail to plan ahead carefully for retirement, even in the later years of their working life, many remain unaware of impending retirement needs."

Twenty years later in 1988, author Venita Vancaspel discussed financial literacy in the United States in her book, Money Dynamics for the 1990s. She wrote:

"There is an educational void in our nation, and unfortunately we are raising a generation of financial illiterates. Even many college graduates cannot figure simple percentages. They are not teaching the one subject that they will need to live well in our free enterprise system – how to manage money. This vacuum is so great that the average couple cannot begin to confront the financial uncertainties and the multitude of choices they face in our complex society.”

All stages of life require us to make financial decisions and plan for economic security. No other life stage, however, is likely to create "the financial uncertainties and multitude of choices" as does retirement.

In 1998, author Robert Stoneman noted in his book, High Finance, Hard Sell, that millions of Americans were finally starting to understand that they must take more responsibility for their long-term financial security. He wrote that many individuals were turning to financial planning books, magazines, and television programs for money management and investment knowledge.

Stoneman also observed that millions of others were making little headway because of financial illiteracy. One of the biggest challenges facing financial companies was to "persuade consumers to forego things they could have now on behalf of building wealth and security for their future."

Inarguably, many individuals today would be in much stronger financial positions had they focused earlier on building future wealth.

A 1991 study by researcher, consultant, and President of Money Quotient, Carol Anderson, investigated factors that either enhance or hinder resource management and asset accumulation for retirement planning. Resource management in this context means using our personal resources (time, energy, skills, money) to achieve our goals efficiently and purposefully.

A surprising result of the study was that the variable "thinking about retirement" proved to be a stronger predictor of pre-retirement resource management than any other variable tested, including whether one was expecting a pension, the level of family income, and age. In addition, "extent of thinking about retirement" proved to be nearly as powerful a predictor of retirement asset accumulation as did family income and was decidedly more influential than education level, occupation level, proximity to retirement, and pension expectations.

These findings demonstrate that engaging in reflective and productive thinking about our future retirement can influence our financial planning for it and help to counteract potential negative influences such as lower income, lower occupation status, and lower education levels. The study also indicates the importance of how cognitive processes – thinking – can influence financial behaviors, motivate planning activities, and initiate positive change.

What was written more than forty years ago remains true today. It is important to spend time now planning for your future.

Are you “thinking” about retirement?


Gary S. Williams, CFP®, CRPC® is President of Williams Asset Management. Gary is also an Investment Adviser Representative of, and offers securities and advisory services through, Commonwealth Financial Network, Member FINRA/SIPC, a registered investment adviser. Williams Asset Management is located at 8850 Columbia 100 Parkway, Suite 204, Columbia, MD and can be reached via phone at (410) 740-0220 or via email at Gary@WilliamsAssetManagement.com. This material was prepared by PEAK.  3:17 PM •  0 Comments •