What Good is an Investment Advisor?

An investment advisor can help you avoid making big mistakes. He does that by giving dispassionate, objective advice that’s tailored to your unique situation. Ask yourself if you can trust the person to get to know you well enough to help you behave financially for the next ten, 20, or 30 years. That means understanding not just your finances, but also your objectives, your values, and your family situation. It’s important that you feel comfortable with your investment advisor because there will be times when they will have to convince you to not do something (like sell when times are looking bad). If they can’t do that, why should you pay them at all? Seek out someone whose advice you will actually respect.

I’ve said it before and I’ll say it again: successful investing is about behavior, not skill.

Nobel prize-winning behavioral economist, Daniel Kahneman, has suggested that we are all born with certain inherent biases. This wiring makes it difficult to consistently make good financial decisions. So, when the market gets ugly, most people sell. When it rallies, most people buy. This results in exactly the behavior you want to avoid: sell low; buy high. Not good. Your financial plan and your advisor are guardrails that keep you from joining that money-hemorrhaging crowd. You can still move within the lines, but they keep you from stepping out of bounds.