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Professional Advice or not?

by on May 30, 2010

I happened to come upon Paul Bucheitt’s blogpost on “What to do with millions..” – a response to a 20 year-old on Hacker News looking for advice as what to do with $5M that he/she’d just received from selling his startup. To sum it up in four words – the post is refreshing. Paul touches on two very important points – the role of financial advisors and when you should get one. To address both those issues, Paul mentions that you have to address the deeper underlying issue of knowing yourself.

This is precisely where I think that the system is flawed – I walked into Wells Fargo the other day and talked to one of the representatives about how best to go about investing my signing bonus, (which, sadly, is nowhere close to the $5M..) without taking on undue risk. After mispronouncing my name multiple times, I was walked through the cookie-cutter survey a Wells Fargo advisor walks every client through. I was given the classic recommendation of a CD where I would be earning 0.00000001% interest (seriously.) and a basket of mutual funds (most of which are Wells Fargo funds). Fantastic.

I felt like the next sucker in line for a portfolio that would undoubtedly crash and burn in the next crisis. I’m not being cynical but it just seems too easy. I’m a complicated person with complicated desires – I have a hard time gauging my own risk and suddenly I have to believe that a 20 question survey knows enough about me to recommend how I should invest my first savings? When I asked the advisor at Wells Fargo about this, they gave me the traditional answer that this is what everyone else does.

Clearly, everyone else isn’t doing the right thing.

Just look at the statistics: in the past 20 years – the equity market has seen returns of an average of 10.4%, and the bond market has seen returns of an average of 7.6%, but the average investor has only seen returns of 1.87%. With a CD giving me pretty much 0% return and a cookie-cutter basket of mutual funds, I’d be lucky to even be seeing 1.87% return!

So, what are my options? I definitely think that the way for me to start is to better understand how I deal with winning and losing money before I take any drastic steps with my money. The next step would be to find someone who legitimately recognizes the need of “knowing your client” in order to give me the right advice. I just think that it’s unfortunate that only high net-worth individuals are worth “knowing” by advisors and that the rest of us are just put in the loser buckets, i.e. we lose the most when the market doesn’t do well and then don’t ever gain enough to make up for the losses a.k.a permanently burned by the market.

Anyhow, I walked out of Wells Fargo somewhat bitter and annoyed (I’m not going to lie.) yet with a purpose – find out more about myself and then a) either get rich enough to be able to get the attention of the right advisors or b) create something that lets smaller investors like me find the right advisor.

I’m leaning towards b) right now but have to attack Step 1 first: know thyself!

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