Gather, don’t disperse.
Over the years, investors have come to believe that a good investment means taking their money and distributing it among several investment professionals. Over time, many investors accumulate an average of four advisors and multiple accounts. From its 401 (k), Roth IRA, Traditional IRA, Brokerage and Mutual Fund accounts, to its 401 (k), Traditional IRA, Trust and Savings accounts, a family can accumulate multiple accounts with multiple financial institutions.
This dispersion of assets leads to a false sense of “diversification” by “not putting all your eggs in one basket”. The problem is, this strategy really hurts most investors.
Many investors have dispersed their assets unknowingly so that no one fully manages or understands their situation, goals or dreams. Without full planning, there is in fact no plan.
1. Incorrect asset allocation
Most investors have their assets dispersed with multiple advisers and multiple financial firms. Neither advisor knows what the other is doing, resulting in an uncoordinated portfolio. An adviser to Company A could sell the same asset that an adviser to Company B is buying. Unless there is a coach looking at the entire portfolio, your money is uncoordinated.
Your asset allocation should always reflect your current position in life, current goals, future, feelings, and family characteristics. When your hard-earned money is dispersed among other advisers and institutions, you are the only one to properly manage your portfolio. Many people are not trained to monitor this properly and consistently. Unfortunately, the overall plan suffers.
2. Incorrect correlation within investments, managers and funds
Without saying it, every investment must be excellent in itself. The investment, manager or mutual fund must have a solid track record (I like a ten year record). You may be able to select quality investments. This is not the problem. Where the breakdown occurs is how these investments relate. It’s almost impossible to follow when one advisor does one thing and another does the exact opposite.
Think of a recipe analogy. You might have the best ingredients to make your favorite dish. You might even have quality chefs on hand, ready to prepare this dish for you. If you put all of these chefs in the same kitchen, but you don’t tell them what the other is doing, a culinary disaster awaits. You can see that the likelihood of your dish coming out correctly is very low, regardless of the quality of the ingredients. The same goes for your investment portfolio.
3. Failure to monitor the consolidated portfolio
You know that life is not static. Life is constantly changing. Whether it’s your job, your kids, the economy, world events, new laws, unexpected expenses (and the list goes on), your world is constantly on the move. Your entire portfolio should also be dynamic. When market forces change, the properly managed portfolio must change with it. I’m not talking about day trading, but rebalancing when and where it’s appropriate. Plus, your goals, future, feelings, and family characteristics also change. Each day is either a day closer to your goals or not.
The dispersion of your assets makes it almost impossible to adequately monitor your portfolio as your life evolves. With the technology and tools available, as well as the new “open architecture” available in full-service financial institutions, it’s best to hire an advisor to help you monitor your portfolio. This trusted advisor will coordinate all of your “eggs” and not put them in one “basket”. He / she can manage your diverse portfolio to meet your goals, future, feelings and family characteristics and ensure that your entire portfolio is working in unison to achieve your dreams.
In conclusion, years ago, many companies were limited to the solutions they could provide individually to the customer. Many had their own funds or proprietary investments, which may or may not be in your best interest. Today’s full service firms have an “open architecture” and are able to go out into the market and provide you with any suitable solution. For your consideration, only hire an advisor who can go anywhere in the market without limitation!