While interviewing our clients and reviewing their current portfolios, we’ve discovered there are ten main issues that most investors face. We have highlighted them below.
1. There are hidden risks inside their financial plan.
Similar to how a doctor’s visit with lab results might find an underlying problem not yet identified, routine check-ups in your financial life can uncover potential risks you might face. Some aren’t aware of the many risks including family dysfunction risk, probate risk and lack of planning risk, so don’t wait for a major life event to schedule your next financial check-up.
2. Their financial goals are not clearly defined.
Early in life, most investors are only trying to navigate financial waters using a small boat that they can operate and dock themselves. However, as the investor continues to grow in their career and family, they end up accumulating a large amount of wealth over a lifetime that becomes hard to steer. It’s important to have specialists onboard to ensure the following precautions are met: portfolio efficiency; you pay only what is absolutely required in taxes; have assets titled appropriately; ensure assets will pass to heirs as you wish; and you are getting the maximum return for the amount of risk you are taking.
3. They are not presented with all of the investment options available.
There are two markets, retail and the institutional market. First National Bank and Trust prides itself in providing clients the same investment advice and options as it (as an organization) has available, often trialing various investments itself before investing a client’s money. Many times, other advisors treat their close family members and friends with first tier investment options and then clients get the remaining options to pick from on the retail floor, and other times they aren’t aware or able to provide the full gamete of options including alternative investments.
4. They are offered outdated investment options.
As young homeowners we start off in our first home purchasing furniture that fits our current space, budget and style without an idea of what we will need in our life long-term. Clients working with an investment broker have an asset allocation that is more of a consequence of individual investment decisions made over the course of a number of years and is not a reflection of assessment of what is optimal today. Just because an investment was a good choice four years ago doesn’t mean it is a good investment choice today. In the investment world, the consumer often finds themselves with a financial plan that is similar to having furniture that really does not fit anymore.
5. Sometimes a good company isn’t a good investment.
Just because it is a good company, doesn't mean it's a good investment for your portfolio. Or just because it's been a good investment for your friend, doesn't mean it's right for your situation. Over the course of time, investment portfolios can have investments that may not be working to their full potential and earning power. Thus modifications need to be made. Do they make sense for your goals, income needs or long term legacy plan? Working with a group that actively manages the markets and the investments in your portfolio to achieve your generational plan, assures that all your portfolios are the right choice for your long term financial plan.
6. They are limited to their advisor’s allegiance to certain fund families.
A butcher might recommend various cuts of meat to their client, while a dietician would recommend a completely balanced diet. This is how some brokerages operate. The investment advisors often times have alliances with mutual fund families and sometimes even receive a better commission when choosing those funds over their competitor. In comparison, a fiduciary, is similar to the dietician. They don’t form alliances with fund families nor do they get paid from the fund families under the table. More so, they are required by law to do what’s in the best interest of the client.
7. Their financial life is not allocated properly.
For example, an oil well driller has all of his net worth in the oil fields. With any excess cash he has, he invests into other oil companies because this is what he knows and trusts. However, when the price of oil substantially falls (this has happened twice since 2007), oftentimes these oil businesses are operating at losses. Perhaps a better idea is to take the excess cash and invest in things that have very little correlation with the price of oil. Financially, we sometimes over allocate to one specific area and especially if we are business owners.
8. They buy and sell based on the day (emotion) not the data.
Sometimes due to emotions, the average investor buys at the wrong time and sells at the wrong time. We strive to help investors remove emotion through education and also by being a resource to them as they grow their prosperity. If the data suggests that an asset class be bought or sold, we help investors do just that through a rules-based approach and not an emotion-based approach. Eliminate your buyer’s remorse by using the data, and to help prevent this, we educate and invest alongside our clients.
9. They are unknowingly suffering from the “whipsaw” effect.
Some funds have what we call a “whipsaw” effect, constantly moving up and down. Investments with a higher whipsaw effect will increase higher and decrease lower in value and more frequently than others. Instead, we believe that it is best to run a marathon with your investments at a regular steady pace.
10. They are left in the dark on their financial plan or future plans for success.
When someone is attempting to put together a large 1,000-piece puzzle it becomes difficult to complete when you don’t have the box with the final picture. Your financial plan can grow to have lots of pieces that need an advisor that can help you put the entire puzzle together. We can help coordinate your financial plan and investment with your CPA, attorney, banker and insurance rep. A fiduciary helps communicate the big picture to the entire team and help all of your advisors focused on the same goal. The more puzzle pieces that are involved, the more important the final image becomes.
The problem today is that people underestimate the amount of risk in their financial plan. At First National Bank and Trust, we solve this by educating on financial risk and implementing a risked based plan that fits your family. This allows our clients to sleep better knowing their prosperity is protected and will be there for the next generation.
If one, or some of, these problems sound familiar, download our new eBook titled “Managing Risk for Your Greater Reward – Ending the Investment Roller-coaster” today, by clicking here.
Are you ready to sleep better knowing your prosperity is protected and will be there for the next generation? Contact First National Bank and Trust Company today at 1 (217) 935-2148 or firstnbtc.com. We look forward to speaking with you soon!
Matt Riley was named Fiduciary Officer, VP, for First National Bank and Trust Company in January 2019. Riley has four years of experience in risk analysis, serving most recently as a Risk and Compliance Analyst at State Farm Bank in Bloomington, Ill. As a Fiduciary Officer, Riley will manage First National Bank’s trust portfolio while helping clients find new ways to meet their prosperity goals. He will focus on growing the portfolio and working to establish relationships with referral sources.