Investment Industry Product Driven, Unfortunately Your Returns Are Behavior Driven

Investment Industry Product Driven, Unfortunately Returns Are Behavior Driven

by: Brendan Magee

I had two encounters this past week that demonstrated to me just how at odds with one another the investment industry and investors are with one another.

The first was at a Christmas party I attended with a networking group I belong to,and the second was with a gentleman and his wife who are trying to figure out the best way to invest their money. At the Christmas party a nice woman asks me what I do for a living. As I am experiencing the conversation, we are just making pleasant conversation, and I am giving her my best explanation as to what an investor coach does. I am telling her that as a coach I help investors focus on the questions they need to be asking. I tell her that coaching helps a person understand that an investor's results are mainly derived from what they do or don't do with their investments/ what they allow or don't allow to be done with their money. I am telling her that as a coach we are trying to help investors stay focused on their behavior.

After listening with some patience she says with some annoyance,  "This isn't a sales call. Just give me the bottom line. What do you put your clients in." Then she tells me that before a career change she had spent a lot of time in the investment industry.

The second instance was the second phone call with a gentleman and his wife who are trying to figure out how they should be investing their money. They met with two very well known companies for consultations. The first suggested an annuity. The second recommended a diversified portfolio of stocks, bonds, and cash. At no point did the representatives of the companies, nor the woman I met at the Christmas party show any interest or seem to put any value on finding out whether or not investors understand the rules for successful long-term investing and could apply them with discipline.

For the couple they are trying to come to long-term conclusions about their investments using quarterly returns data. They have no idea as to whether or not the 100 to 50 stocks that are in the recommendations of one of the firms they have met with are diversified or not. They don't even know to ask the questions to make that determination. Their life savings and the futures they want to pass along to their children and grand children are at risk as they are playing a game of blind archery with their portfolio.  They have no real idea about what they may be allowing to be done with their life savings.

This where the investor's financial future and the investment industry's agenda are at odds with one another. The investment industry's bottom line profits depend on the investor continuing to buy and put money into an endless parade of investment products, products that not event their representatives fully understand. The investor's financial security depends upon following and applying three rules: Own stocks, diversify, buy low/sell high.

The questions are, does an investor understand how to properly apply these rules? Over the past 20 years, as noted by the Dalbar Corporation's Quantitative Analysis Report for 2015, and investors under performing the market by $286 billion, you would have to conclude that investors do not know how to follow these rules, nor does the investment industry show any interest in making sure they do.

When is the last time you saw an investment advertisement or a cable to television show talking about an investors behavior? Without any attention given to it, what do you think the odds are that an investor would be able to recognize and eliminate bad behavior? Finally, if the investment industry isn't promoting good or prudent behavior, what kind of behavior do you think is being promoted? Is it behavior that's more beneficial to your bottom line or theirs?

Now it might not be the easiest thing to do, but unless you stop and take an honest look at whether or not your behavior is leading you in the right direction or causing you to shoot yourself in the foot, how can you ever overcome it? ( By the way, if you want to get a completely unvarnished perspective, do not do this exercise on your own. It's too easy to not be as thorough as you need to be) Going through an exercise like this can be painful. Your pride and your ego most likely will get bruised a bit, but if the exercise doesn't kill you, the result will be an investor who has taken complete ownership of their financial future.

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments e-mail brendan@coachgee.com or call 610-446-4322