Get to Know the Basics

What drives the financial markets? The unfortunate fact is that it’s mostly: Fear and Greed.

The fear of losing money and the desire to make more is the major reasons why the “average investor” does so poorly in relation to the markets. Of course, you have to throw in a simple case of complacency too.

Why are you reading this right now? Is it fear, greed or both that is driving you? You can say it’s neither. That it’s simply curiosity or a desire to expand your knowledge. Perhaps. But the application of this knowledge really boils down to two things: to make your money grow and to help reduce the risk of losing what you already have. Usually, greed overtakes us during a bull (upward slopping) markets, and fear during bear (downward sloping) markets. There are many other factors that can influence financial decision-making, but let’s stick to the basics.

When regulatory bodies impose rules, what are they mainly trying to control? Greed. This emotion is particularly important to regulate the big Wall Street players, such as the banks, investments firms, the very wealthy, etc. Why? Because they can manipulate the financial systems and make even more money at the expense of, well, all of us.

But when they’re not busy breaking the rules, big players don’t usually fear too much when it comes to their finances. Why? Well, if they lose some money in the short term, it’s probably not going to impact they’re bottom line in the long term. Also, they usually have people helping them make prudent financial decisions.

On the other hand, when it comes to the average investor, both fear and greed tend to drive their decision-making. Combine that with a lack of financial knowledge and a lack of a qualified, honest financial advisor, and you have a recipe for poor decision-making.

Knowledge, Discipline and Trust.

Review our pages under our “Why a Financial Advisor?” and “How We Can Help” tabs to learn some of the basics. It’s our job to expand and continue that education each time we sit down with you. Knowledge is power.

Once you embrace the concepts and understand how fear and greed can create major pitfalls in any good investment strategy, then it’s simple…just stay disciplined.

Finally, trust that when we agree on a financial plan and investment strategy, we will stay disciplined and continue to use the most up-to-date academic research to optimize your probability of success.

Please note that academic research is very different than Wall Street wisdom. Wall Street analyst are constantly talking about what happened today in the news and trying to apply that information to help you make a decision. Wall Street benefits from the average investor making those short term decisions. How? More trades, more fees.

Academic research has repeatedly shown that blocking out that noise and not allowing it to dictate your financial decisions will increase your long-term returns. How? By not selling or buying an investment at the wrong times and by significantly reducing your costs along the way.

We agree. That’s why we charge a flat fee based on the assets we manage for you. Therefore, if you make more money, so do we. Our goals are aligned. Click here for our Fee Schedule.

Will the noise and your emotions step in and question things from time to time. Sure? But we’re here to help you when those times arise. We’re in it for the long-term with you.

by Frank del Busto

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.