This is a hypothetical example:
On a Saturday morning, Clay Hansen*, a successful senior information officer in his mid-40s, sat down at his home office computer and logged on to Morningstar.
For months, he had been spending several hours of his Saturday researching investments on the site and others. His goal was to set himself up financially so he could leave the pressure cooker of his lucrative job while continuing to give large amounts of his wealth to charity.
About a year into trading independently, he came to see me with his wife. He had made some well-placed investments. But the bad news was that because he wasn’t knowledgeable in other areas of his financial life, and lacked an integrated and longterm financial plan, he wasn’t maximizing all of his opportunities. This was negating any short-term profits he was making on his stock picks.
The problem was that he wasn’t aware that in 2020 he could give gifts of appreciated stock and be eligible to take fair market value of the stock at the time of the donation up to the overall amount allowed by the IRS, as well as avoid the capital gains tax when that stock was sold.
You can help protect yourself from blind spots like Clay’s by working with an investment professional. Specifically, they should enable you to:
1. Maximize opportunities, minimize tax liabilities with a plan
Your financial situation is not simple. As a corporate executive or entrepreneur, you likely have assets and aspirations that are manifold.
This complexity requires careful and comprehensive planning that goes way beyond picking stocks if you want to optimize your many financial opportunities. In addition to managing your portfolio, a professional adviser will delve into the details of your:
- Compensation package, including everything from stock options to 401(k)s and IRAs
- Retirement goals
- Estate planning
- Philanthropic objectives
Analyzing this information through the lens of your long-term financial goals, your adviser will create a multi-pronged plan that seeks to grow and protect your wealth by maximizing returns and avoiding risks and losses. For example, an adviser might proactively spot an opportunity to shoulder a tax bill upfront for greater gains down the road, whether related to a trust or the exercising of incentive stock options.
But to objectively create, implement and continuously monitor a plan on your own, without using a skilled professional and a robust methodology, can be difficult.
You might struggle to assess your own risk or overlook opportunities. Ultimately, you may keep less money in your pocket. This is why many clients who leave our wealth management firm come back. They weren’t being successful solo.
2. Start, stay on track and stay in Start planning
One of the worst financial decisions is not to make one. Given the number of urgent priorities on your plate, it’s common for important personal financial ones to slip down your to-do list. That’s why a wealth manager who gets you moving on a well-thoughtthrough plan or pries you away from analysis paralysis about one is invaluable. As I tell my clients, the cash under the mattress approach is not safe or sane if you want to reach your long-term financial goals.
Stay on track
Once you have a plan and strategies in place, successfully implementing them requires rigor and vigilance so you can pursue staying on track. Take the analogy of trying to get in shape. You wouldn’t attend an intense initial session at the gym only to work out sporadically from then on and expect to obtain solid results.
Similarly, sophisticated financial planning based on well-established processes is also not a one-and-done event. But an adviser can help you stick to your plan - day-after-day - and identify non-obvious risks and opportunities to increase your chances of success. This continuous and active monitoring of various facets of your financial life, how they might impact each other and how they might need adjusting can be tough to do on your own.
Stay in the market
What can be toughest, though, is not letting your emotions get the better of you. Kneejerk reactions can cause you to stray from your investment objectives and work against your own self-interest.
During the good times, you might take on too much risk, assuming the value of your holdings will keep multiplying. They likely won’t, and over time you could lose what you gained. And during the bad times, you might get out of the market, spooked at possibly losing more when you’d be wise to stay in.
Although no one knows how the markets will act in the short term, in the long term, markets reward investors who stay the course. A professional adviser can help keep you on this path by showing you the big picture when you understandably get caught up in short-lived market fluctuations.
3. Lower your risk
Personally, I hate surprises, and I’m far from alone in this sentiment. Yet over the years, I’ve unfortunately met clients who’ve been shaken by negative financial surprises. Why? Working on their own, they weren’t able to accurately gauge their comfort level around risk, which is a complicated, multi-faceted endeavor. One online quiz and a quick gut check are not up to the job.
After all, the heart of wealth management is risk management. As such, your financial plan must be based on understanding your risk tolerance. A seasoned adviser can more objectively and deeply assess your risk through a combination of sophisticated quantitative tools and in-depth conversations (i.e., they really get to know you). Such a thorough approach is critical because the accuracy of risk assessment will underpin the
strategies used to avoid losses and maximize profits.
4. Protect your time while DIY financial planning devours it
Few things are more frustrating and deflating than pouring a significant amount of your time into learning something new only to not succeed at the task.
Even though Clay, a highly intelligent and astute man, diligently devoted hundreds of hours (if not more) to educating himself - researching financial questions, evaluating options - it was not enough to be on course to achieving his long-term financial goals. He had blind spots.
Despite slick commercials that can make something such as DIY investing appear easy, it is not as simple as just learning some newfangled financial terminology and concepts or even reading page 11 of Google search results. It’s about interpreting the context, possessing insight into the cycles and having real-world experience in the nuances of how the market operates over time.
Now tack on DIY planning for your retirement, estate and other aspects of your financial life, and you can see how going it alone can eat up countless hours, with possible pitfalls along the way. An investment professional can both protect your time and the wealth you’ve been building.
5. Gain clarity, control and confidence
The more accounts and assets you have, the more challenging it can be to know where you stand in terms of how close you are to reaching your goals and the pros and cons of the current options in front of you to get there.
A wealth adviser will lay out this information, both the big picture and the minutia, and provide regular reporting so you can gain clarity and control. This transparency seeks to ensure there is no mystery.
They can also educate you about various aspects of financial planning (e.g., risk management) working towards you feeling more empowered. At our firm, we love this part of the process because it can increase collaboration and trust.
Lastly, because a fiduciary investment professional has a legal responsibility to put your interests first, they are accountable to you. This should provide you with some financial confidence as you seek to protect and grow your wealth.
* This is a hypothetical example and is not representative of any specific investment. Your results may vary.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.