Thanks to a great share on Twitter by @Jesse_Livermore, we have this very interesting gem of a chart:
Reading between the lines, the Under 35 cohort reveals a fascinating tidbit: a homeless “Millennial” with no assets and no debt has a higher net worth than 30% of his/her peers. Think about that one for a second!
Just because you’re in a high (low) net worth percentile, it doesn’t have much to do with your specific financial goals but we all have a conditioned desire to be graded against our peers after all of that standardized testing in school, right? It’s a guilty pleasure in this case – if you’re in an upper percentile, that is.
Now that I have you thinking about net worth, some gratuitous self-promotion for my Personal Balance Sheet Tool (a simple, one-page worksheet to determine your net worth):
What does “Independent Investment Advisor” even mean?
It’s a scary (financial) world out there. Just as the first season of True Detective had its gumshoes searching the seedy underbelly of Louisiana for a serial killer, finding a financial professional with your best interests truly at heart is a dangerous undertaking.
The process seems simple in principle:
You need advice.
Financial Person has the advice.
You have money.
Financial Person gets a little bit of the money for advice.
Case closed, the world is better off! A case study for the gains made by trade, both parties are now better off.
Unfortunately, as we know, the advice seeker is rarely better off. This is why the financial industry has the reputation it does.
Where does it all go wrong? Why do so many people get ripped off, sold bogus financial products while perpetuating a terrible feedback loop for the average investor where inaction, or poor decisions by going it alone, are the norm? The answer lies in incentives, but I believe that more specifically the level of independence a Financial Person possesses is crucial.
Nearly every Financial Person – the brokers, the insurance agents, the CPAs selling mutual funds, among others – are incentivized to sell. They claim to have the advice investors seek but are not required to put client interests above their own and they are beholden to the organizations they work for. Sell or find another job. They are agents of a bigger machine designed to squeeze the sponge that is the lowly advice seeker and his/her peers.
Ask yourself: who does this Financial Person serve? Do they have the leeway to recommend a product, or advise a transfer out, or any other decision that doesn’t have a direct pathway to monetization to them and their employer?
True independence as an investment advisor means I recommend any solution I deem suitable for clients. I don’t have a list of approved funds or products, I don’t receive commission and I have no boss. I don’t have the conflict of being pushed to boost this month’s bonus numbers for the firm I work for. My incentive is ultimately to be trustworthy, which is something that’s earned over time and cannot be packaged in a shiny prospectus, a finely tailored suit or implied with a name on a business card.
True independence allows me to be more like an Amazon.com, working to bring the lowest cost to clients, instead of running a shop where extracting the most revenue possible is my mandate. Simply put: I am betting that doing this the right way will resonate with clients. I am betting that, when educated about how the advice industry actually works, people will choose good advice over shiny objects.
Remaining independent – free from being a financial sponge-squeezer – is how I’ve decided to make my way as a Financial Person. It’s certainly not the path of least resistance to fame and fortune but working for the benefit of clients first is the only way I can be a Financial Person and sleep soundly at night.
Markets reacted poorly to news out of Greece today. The country’s financial struggle has essentially been a practical joke for five years. Thankfully, the details don’t really matter to your portfolio.
Just like the details don’t matter when conflict in the Middle East flares up, as it perpetually does. Just like they don’t matter when other small countries get into trouble and the dreaded “d” word comes into play (default). Just like they don’t matter when a new disease shows promise of ravaging the entire world (but never does).
Show me a globe and a blindfold and wherever I lay a finger on land will reveal a country whose drama has roiled markets at one point in history. Today, it’s Greece. Next year it’ll be somewhere else.
The only thing that matters is perspective. If your portfolio’s value declined today then it’s important to thank Greece and the investors who panicked because they are serving as a reminder that patience and tolerating risk will forever be rewarded. The practice of giving no incentive to acting on impulse is the basis for the entire financial system – it creates the risk premium, in finance-speak – and by embracing this effect you will ensure yourself an advantage over everyone who acts on emotion.
Risk is rewarded. Patience is rewarded. Impulse is not.
Markets were down about two percent today and it’s something that will happen every so often through the course of any given year. If you lost “a lot” of money today then I suggest you thank Greece – the country’s drama show has served a reminder that you started today with a lot of money and you have ended the day, still, with a lot of money. It’s never bad to be reminded of a good thing.
Keep ignoring the headlines and keep your eyes on the target, soon enough you’ll be thanking yourself (maybe from a Greek island you purchased on Craigslist for twenty bucks).