Professional money managment is often the best avenue to pursue to help you be successful in your personal financial planning efforts. Skilled money managers, or asset managers, can provide you with expertise, strategy and discipline, which can make them worth their weight in gold. There are many challenges that individual investors face. Working with a professional money manager helps you to overcome many of these challenges. I’m only going to cover the two most common and most deadly challenges here, which are:
Buying things after they've already gone up is a good recipe for disaster.
1. Chasing Hot Returns
This is one of the most common mistakes that individual investors make. Every year they look at their investments and they sell their poor performing investments, and then buy new investments that have been top performers. Chasing returns like this results in selling low and buying high, the opposite of what we all want to do. But this is a very common mistake that people make. I can’t tell you how many times people have said to me, “Every time I buy something it goes down, and after I sell something, it goes up.” If this is happening to you, then you’re falling victim to the “Chasing Hot Returns” pitfall.
2. Emotional Investing
This challenge is closely related to the “chasing hot returns” issue above. But this challenge deals with two of our strongest emotions: fear and greed. When the market it going down and your account is losing money every day, fear kicks in. This fear creates pain that increases more and more until you just can’t take it anymore. Once you’ve had all the pain you can handle, you decide to sell. And then what happens? That’s right, whatever you sold starts going back up. You’ve essentially just sold at a low point.
Selling something after it's gone way down is sometimes the worst thing to do.
On the other side of things, when the market is going up and you feel that you’re not invested enough in it, greed kicks in. This greed creates a different kind of pain. You don’t want to miss out on a good thing, and it kills you to think that you are. So you buy, or buy more. Now, you’ve bought at a high point. And then what happens? Right again, it goes down. And the cycle starts over.
Having professional money management helps you to avoid these two challenges. Your professional financial advisor is somewhat removed from the emotions of market fluctuations. He or she can help you to take a step back and focus on your real goals, rather than the news of the day. I have said for a long time that watching CNBC every day is not a good things for most individual investors.
At Turning Point Finanical we have developed a family of 5 Model Portfolios that give investors the diversification that they need, and keeps them exposed to the best parts of the markets. Investing through model portfolios ensures that your money is being managed by professionals, and can help you be more successful in your personal financial planning.
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