Intelligent finance is not only a question of confidence.
When planning your financial future, look at what you are doing as objectively as you can.
“I’m good at handling investments,” a new client told me recently. “I just don’t have the time.” While he might have been right, I considered a recent NorthwesternUniversity study that showed that about two-thirds of participants thought they were managing their money better than they really were. Overconfidence made these investors ignore the reality that their investments weren’t as strong as they perceived them to be.
Whatever the reason that brings overconfident investors to an investment advisor, once in the conference room the overconfident investors tend to have distorted expectations of their advisor. Advisors who recognize this behavior will usually spend extra time with these clients explaining what’s realistic to expect, and help clients understand the metrics that can reasonably be used in determining investment success. If you or your spouse feel a little too confident in your ability to manage money, take a humbling look at all of the Wall Street experts who lost billions last year and take stock of what you have that they don’t.
“Under-confident” investors, on the other hand, know that they don’t know it all. Many times I’ve heard people say, “I don’t know much about money, Doug, but I’m sure you’ll pick the winners.” Though I appreciate their vote of confidence, like all investment advisors and money managers, I don’t have prophetic vision. As such, when people suggest that I can predict the future, I spend extra time with them explaining that even though I’m familiar with the investment world, that doesn’t mean that I will only choose profitable investments.
What happens when an overconfident advisor meets an under-confident investor? Unfortunately, this isn’t the opening line of a joke, but a recipe for financial disaster.
Try to identify where you and your advisor fit on the confidence spectrum, and then assemble a portfolio that will work for you. Take a long, hard look at your assets, income, and goals, and then get to work on putting together a rational, reasonable, financial plan.
To find out more about how to plan your finances properly, read http://www.infobarrel.com/Top_Tips_for_Planning_Your_Financial_Future
Disclaimer: This article is for educational purposes and is not a substitute for investment advice that takes into account each individual’s special position and needs. Past performance is no guarantee of future returns.