Learn the dangers of placing too much trust in your Investment Advisor and why it’s important to be the CEO of your own finances.


Investment Advisors are Important

When you get to the point in your financial life that you are ready to start investing, it is super important to find the right partner. An Investment Advisor is one of a few key people who will help you build and manage your wealth.

I prefer to think of it like this: you are the CEO of your own financial life. And, every good CEO needs to be surrounded by the right team to make sure everything is moving in the right direction. So, you need a few key experts on your Board of Directors. This includes an Investment Advisor, a tax professional, a Real Estate professional, and maybe one or two others, depending on your situation.

All of these advisors serve similar roles. They are subject-matter experts in their fields. Their responsibility is to teach you about their industry and help you decide how to participate.

If you are successful at eliminating debt and building wealth, you will likely buy more investments than any other single thing in your life. Your investments will be worth more than your house, all the cars you’ve ever purchased, your college education… everything.

But, how will you know what to do with your money after you have saved? There are about 5,000 publicly traded companies in the US. But, there are also about 10,000 mutual funds and 7,000 ETFs! How can you choose the right investments?

This is the value of an Investment Advisor. They can help you build an investment plan that matches your needs, your timeline, and your willingness to take on risk.

So, having the right Investment Advisor in your corner is vital. But, it turns out, you are more important!



You are More Important than your Investment Advisor

You are the CEO of your own financial life. And, just like a CEO, you cannot do everything. You have to delegate.

But, that does not mean you just hand control over to someone else and trust blindly. A good CEO knows exactly what is going on with the company’s money, and works together with the CFO to execute their plans. If the CEO doesn’t know what the CFO is doing, it is a recipe for disaster.

I cannot tell you how many times I have talked with people who have significant investments and they have no idea what they own.

As Dave Ramsey is fond of saying: “Never say ‘I’ve got a guy.’ You are your own guy!”



Investing is Important

Unfortunately, you don’t get to bury your head in the sand. If you want to eliminate debt and build wealth, you need to learn how to do it.

The magic of investing is compound interest. As I’ve written about before, if you start a Roth IRA when you’re 30, you could grow the balance to about $1.2 million by the time you are 65. But, only about $200,000 of that is money you put in yourself. That other $1 million is growth!

So, it is possible that by age 65 over 80% of the money you have did not come from work!

I am 41 years old. As of today 52% of the money I have invested did not come from work. Over half of the money in my investment accounts came from growth. And, I’m still young. I still have decades to continue to grow that money. By the time I am 65, I expect that over 85% of the value of my investments will have come from growth.

Let me say that another way: the most lucrative job you will ever have is an investor.

I cannot overstate how important it is to invest. But, you have to do it right. And, you can’t blindly trust your Investment Advisor to do it for you.


Investing is the Best Job You’ll Ever Have

Are you good at your job? How much effort do you give your work? Over time, do you learn and become better?

Well, when you retire you will need your investments to provide enough for your family to live on. That sounds suspiciously like a job to me!

So, give your investing job the respect it deserves. Become good at it. Take the time to understand what you are investing in, and lead your Investment Advisor… not the other way around.


What Happens When You Trust Your Investment Advisor Too Much

First, let me say that I am not suggesting that all Investment Advisors are Bernie Madoff. Almost all Investment Advisors have good intentions.

Sure, there is a risk that if you trust your Investment Advisor too much, they could run off with your money. But that is incredibly rare.

The biggest risk of trusting your Investment Advisor too much is having the wrong investments. Let’s look at two examples where having the wrong investments can doom your finances.

Investments too Risky

I see this all the time. A young, energetic Investment Advisor picks a portfolio that would work for them. But, their clients are not as willing to take that much risk.

A risky portfolio will lose half of its value in a market correction. Every single time that happens, there is a swath of investors who didn’t know their investments were that risky, and they sell everything. That effectively locks in their losses and obliterates half of their money.

I remember it happening in 2002. It happened again in 2008. Oh, and it happened again in March of 2020.

By not understanding your risky investments, you could lose half of your money!

Investments too Safe

On the other end of the spectrum, sometimes I see investment portfolios that are too safe. The investor may be willing to take some risk, but the Investment Advisor has them in CD ladders and corporate bonds for some reason. Or, worse, some guaranteed insurance annuity product.

The issue here is that compound interest is not doing its magic.

Let’s say you are 45 and you have amassed $100,000 in your investments. You plan to retire at 65, and based on current statistics, in the US you can expect an average of 20 years in retirement. That means you will be an investor for the next 40 years.

In 40 years, $100,000 will grow to about $500,000 with a 4% rate of return.

But, over the same time frame, $100,000 will grow to about $2.5 million with an 8% rate of return.

So, that extra-safe portfolio will cost you about $2 million, or about 80% of your growth!

By not understanding your safe investments, you could lose 80% of your money!

An investment portfolio that is too safe is actually more harmful to your finances than one that is too risky.


How to find a Good Investment Advisor

Companies don’t randomly pick their executives. As the CEO of your own finances, you shouldn’t either. Don’t just pick one based on a Google search, or because it is who your parents worked with. You need to find the right Investment Advisor for you, but how?

Find a teacher.

You want an Investment Advisor who loves to teach people about the business. You want their eyes to light up when you ask questions and engage.

It is actually super easy to tell the difference between a salesman and a teacher:

Just ask “Why?”

The question “why” is like kryptonite to a salesman. And, it is fuel to a teacher.

When you repeatedly ask a salesman “why” they will get frustrated and sweaty. The vein will bulge out of their forehead. They will check their watch and realize that every minute this sales meeting drags on is reducing their hourly wage.

Try it. It’s actually a lot of fun. The next time a solar panel salesman knocks on your door, try to ask them “why” 10 times. I guarantee, they will get frustrated and leave. Or, try it at a car dealership, that’s also a real treat!

But, when you repeatedly ask a teacher “why” they will get excited. Teachers rarely get active and engaged students. So when you start genuinely asking why they are recommending their strategy, or why one investment performs the way it does, the teacher will love it. Teachers love to teach, and there is nothing better than when a student is soaking up the material.

The Right Role for an Investment Advisor

Trusting your Investment Advisor to completely control your investments is a mistake. But, what role should your Advisor have?

The answer is in the name. They are there to Advise an Investor. You are the investor! They just offer advice, educate, and execute the plan after you agree. But, you are in charge. Let’s look at similar examples in other areas:

  • President and Secretary of the Treasury
  • Sultan and Grand Vizier (maybe a bad example?)
  • Captain and Chief Engineer

In each case, the subject-matter expert brings recommendations to the leader. If the leader needs more information before making a decision, they say so! Can you imagine Picard saying to Geordi, “I dunno, do whatever you think is best, I don’t really understand this stuff.”

That means, you should absolutely never invest in anything you do not understand.

Your Investment Advisor works for you. You are the boss. You are the leader. It is up to you understand the plan, and set the direction. The Advisor’s job is to execute the plan.


The Right Role for Your Investments

Investing is quite possibly the most important part of your financial plan. Done right, most of the money you have when you retire will be gains you have achieved inside your investments.

Because the stakes are so high, there are a few things to keep in mind.

Four Pillars of Personal Finance

Everyone should invest. But, not everyone is ready to invest yet. If you jump into investing before you are ready, you may be forced to stop investing at the wrong time.

To get ready to become an investor, you need to get your financial house in order. That means the Four Pillars of Personal Finance:

  1. Spend less than you make
  2. Have emergency savings
  3. Have diverse investments
  4. Rebalance

If you spend more than you make and are acquiring more and more debt, then you shouldn’t invest yet.

Also, if you do not have emergency savings set aside, then you shouldn’t invest yet. Slow down, save up some reserves, and then start investing.

Retirement Lasts Longer than Ever

Life expectancy keeps going higher and higher, but people continue to retire at around the same age as always. That means more time in retirement.

Just since 1960, the life expectancy for someone at 65 has doubled from about 10 years to about 20 years. That extra decade adds quite a bit of complexity to retirement planning.

  • Inflation does not do too much damage in just 10 years, but in 20 years it can really eat away at your savings.
  • More and more of us will need long-term care during our retirement, which can devastate your nest egg.

That means that it is generally inappropriate to get too risk-averse too early. A 20-year investment horizon at 65 means that if you are too cautious, your returns could be lower than you need to make sure your money lasts longer than you do.

Interview your Investment Advisor

Your Investment Advisor is your partner, and you want to make a good choice. When deciding on an Investment Advisor, it is okay to shop around.

If you are looking for a new Investment Advisor, start by asking your friends. Find out who they work with and set up an interview. Also, check online reviews, like Yelp. Narrow the list to between three and five finalists. Then, interview them. During your first meeting, be honest. Tell them about yourself, your goals, and your investing experience. But keep it short. Spend most of the interview listening. Here are a few questions you could ask:

  • What is your investment philosophy?
  • How often do your clients rebalance?
  • How do you know what level of risk is right?

After each question, ask the exact same follow up: “Why?”

After about 30 minutes of getting asked “Why?” a salesman will be sweating. A teacher will have lost track of time and be super excited about the conversation!

Final Thoughts

Your Investment Advisor is one of the most important partners you will have in your life. It is incredibly important that you trust them with your money.

But, blindly trusting them is absolutely unacceptable. You are the CEO of your own finances. It is up to you to understand what you are investing in and give good direction to your Investment Advisor.

It is up to you to lead.

The risk of trusting your Investment Advisor too much is that you will have the wrong investments. As a result, you will either take on too little or too much risk. And, surprisingly, taking on too little risk is actually worse!

Finally, you should absolutely never invest in anything that you don’t understand. If your Investment Advisor has a strategy you don’t fully understand, then ask “Why?” Their answer will tell you whether they are a salesman or a teacher. And, that will make all the difference.

What to Read Next

For more information, check out these articles that offer more detail about these topics. Enjoy!


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