Just Because You've Reeled In A Few, Doesn't Mean You're A Fisherman

Fishing Is About More Than Reeling In A Hooked Fish

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Investing Is About More Than Higher Returns

              by: Brendan Magee

Just this past week, on a trip to the Jersey Shore, my father-in-law and I tried our hand at some surf fishing. We were trying to recapture the glory of a few summers ago when we had a banner day and caught all kinds of fish off the Stone Harbor Beach. On that day we caught blue fish, king fish, and sand sharks. You name it, we caught it and had a lot of fun. Fast forward two years, we fished for about an hour and spent most of that time untangling snags in our fishing line and trying to uncover fishing lines that would snap with every cast. A banner day had turned into a, "Can't wait to go home" kind of a day.

So what really went wrong? The major problem was my father-in-law and I, because we reeled in a few fish, believed we knew how to fish. The last time around we had a fishing guide with us. He not only knew when and where to go fishing, he also made sure we had the right equipment, understood how to cast the rod, and made sure that when we reeled in a fish we didn't damage the fishing rod. Captain Frank made sure made sure we got out of our own way.

Without Captain Frank, my father-in-law and I had no idea we were buying rods and tackle unsuitable for casting in the ocean. We bought equipment that assured we would do anything but catch fish this time. We had a false, and dangerous to ourselves, sense of confidence in ourselves.

The overconfident fisherman syndrome can also hit investors and financial advisors. They invest money and experience some positive returns over a relatively short period of time. From there, they conclude that they really do have some expertise when it comes to investing. They conclude they have exceptional skill when it comes to investing, not that they just happened to get lucky. Now they start dabbling in more speculative, or sophisticated forms of investing. Whether they made a killing or lost money, that doesn't matter. For sure they have an expertise, otherwise they wouldn't have ever experienced any success from their investments. So keep at it.

The only problem is without real expertise they cannot distinguish between gambling and speculation versus prudent investing. With that, the odds are they will continue to engage in gambling and speculation where there is a mathematical formula that says they will lose. The only problem is, it is not a $30 fishing rod they stand to lose. They stand to lose the money they needed for a secure retirement or their children's educations.

The lesson here is be humble. Don't be too quick to crown your self a champion fisherman or investor. Have some one who you trust to show you your blind spots and make sure you are not getting in your own way.

P.S. If you want to have a great and enjoyable day of fishing , I have Captain Frank's phone number.

Brendan is the founder and president of Inevitable Wealth Coaching. With questions or comments to www.coachgee.com or call 610-446-4322.

$20,000 Lost To The IRS In Two Minutes

A Phone Call From Her Broker, An Uninformed Decision, And A $20,000 Tax Bill

                                                    by: Brendan Magee

Sue called me up in a bit of a panic. She is a long time friend of the family and needed someone to confide in.  She just found out she had made a decision earlier in the week that was going to cost her big time. She received a phone call from her broker asking her if she wanted to surrender her annuity accounts. She had the accounts for a while and was ready for something different so she said yes she was ready to surrender her annuities. Her broker, whom she was with for the past five years, said he would move the money from those accounts to mutual funds.

In a follow up conversation with her accountant she found out the ramifications of that decision, a decision, she didn't fully understand. When she surrendered the annuities, that was a taxable event. Every dollar that was coming out of her annuities was going to count as income for 2014. She and her, since passed away husband, had been saving in those accounts for years and had built up a sizeable nest egg. Not only was the money coming out of her annuities going to be taxable, but also since she was substantially increasing her taxable income for 2014, 85% of her Social Security Income benefits would now be taxed. For Sue, it was like having a two ton safe fall out of the sky and land right on top of her head. She couldn't understand how all this bad stuff was happening to her.

The first mistake Sue made was was assuming her broker had her best interests at heart. His agenda was to serve his needs, not Sue's. To not take the time and sit down with Sue and help her fully understand the ramifications of closing out her annuities is criminal in my opinion. To callously say he was moving her money into funds where he gets a nice commission after Sue has to needlessly shell out $20,000 in taxes is completely unforgiveable. Her broker is not an advisor at all. He was and is a salesman serving his agenda only.

The second mistake Sue made was to be completely disengaged from decisions involving her financial security. You don't have conversations about medications you will take or discontinue taking over the phone. You sit in the doctor's office, get examined, discuss how you are feeling, talk about side effects of medications, and set up protocols for what to do if an emergency occurs. Nothing is left to chance. For Sue to allow her broker to talk her into a decision involving hundreds of thousands of dollars over the phone is asking for trouble.

Sue should have insisted on a face to face meeting, perhaps involving her accountant and the broker so that she would have all her bases covered before making a decision. Frankly, Sue needed someone to point out what she couldn't see. She needed someone to point out her blind spots.  She didn't and now has to deal with a lot of  needless expense and anxiety.

What every investor has to ask themselves before making an investment decision is this, what is it that I am not seeing here? Be humble enough to realize that your perspective can be flawed. The biggest problems, the ones that do the most damage don't come from what you can see. They come from what you can't see. Just ask Sue.

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