5 Wealth Management Taboos You Should Consider Breaking for Financial Sense

By : Teresa Conley | June 20, 2020

When it comes to making financial planning and wealth management decisions, it just makes sense to follow conventional wisdom… doesn’t it?

Financial sense does not always mean following conventional wisdom. Though conventional wisdom can be defined as ideas that are so widely accepted no one really bothers to question them, there may be times when going against the grain makes a lot of financial sense. Don’t believe it? Consider that — not so very long ago — conventional wisdom told us that the sun revolved around the Earth… an Earth that just happened to be flat.

While that may be an extreme example, there are a few bits of “commonsense” financial planning concepts floating around out there that probably shouldn’t be accepted as conventional wisdom. Here are 5 wealth management taboos that you might want to consider breaking.

Wealth Management Taboo #1: Talking About Money is Tacky

Religion, politics and money… also known as the subjects that one just doesn’t discuss in polite society. Not surprisingly, money tops the list of taboo topics, according to a recent survey that indicates 44 percent of Americans view personal finance as the most awkward conversational topic, beating out potentially explosive topics such as politics (32 percent), religion (35 percent), and even death, which came in a distant second at 38 percent. Women find it even more difficult to discuss money; 2015 research shows that while more than 75 percent of women feel comfortable discussing health issues with a medical professional, less than 50 percent feel comfortable discussing money and investing with an investment professional.

Wealth management is one topic that it doesn’t pay to be shy about. When you’re meeting with your trusted wealth advisor, take the opportunity to be frank and open about your needs, your goals, and your financial situation. This includes breaking what many might consider the ultimate taboo: Asking your investment professional how they makes their money. This may seem like an incredibly rude and intrusive question but, as we’ve discussed at length on the Premier blog, the way a financial planner is compensated may affect the financial advice they provide to you. (Hint: When you’re looking for a wealth advisor, you want to work with a fiduciary who is not paid on a commission basis.)

Wealth Management Taboo #2: You Should Focus on Managing Returns

“But wait,” you’re probably thinking, “isn’t a focus on returns the whole point of investing?” While (of course) everyone wants to earn the best possible returns, the conventional wisdom that says investors should focus on those returns simply isn’t correct. Why? Because you can’t control returns. Why would you waste your time and energy — and vastly increase your stress level — worrying about something you have no control over?

Despite what the latest financial guru in the media tells you, no one knows where the market will be in a week, in a month, or 20 years from now… and attempts to predict the market through stock picking or market timing simply don’t work. Instead of wasting your time and gambling your hard-earned money away through active investing, focus on what you can control: 

  • The way your assets are allocated across asset classes
  • The amount of risk exposure in your portfolio
  • The costs, fees and expenses you incur
  • Your investments’ tax efficiency
  • Building and maintaining a truly diversified portfolio

Wealth Management Taboo #3: If it’s Not Working, You Should Try Something Else

We live in a society where action is valued and inaction isn’t; it’s easy to understand why investors adhere to conventional wisdom to try something else when something isn’t working. 

Francoise Crandell is a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt County

Financial Sense

While this mantra holds true in many areas — a bad job, unhealthy lifestyle, etc. — it doesn’t work for financial strategies. Don’t confuse strategy and outcome; It’s best if you’ve developed your plan with trusted wealth advisors and created a long-term strategy with your needs.

Aside from regular rebalancing of your portfolio to maintain diversification, you should only change your direction if your ability or need to take risks has altered, your financial situation or goals have drastically changed, or if a new investment vehicle is introduced that increases efficiency.  

Wealth Management Taboo #4: You Must Keep Up with the Financial News

This is one taboo that we heartily recommend breaking, starting now. The financial media does not exist to help you gain financial sense to become a successful investor; it exists to garner ratings and sell advertising. The most sensational headlines boost ratings, so it’s in financial media’s best interest to get its audience all riled up. 

And when investors get riled up, they tend to react emotionally to the normal ups and downs of the market. That means they’re more likely to buy high and sell low. This active management style results in more expenses, and it also means that investors may miss out on growth. No one’s advocating ignorance, but it’s best to simply ignore the noise and stick with your long-term financial strategy.

Wealth Management Taboo #5: But Doing Nothing is a Bad Idea

At Premier, we subscribe to a passive investment approach. Passivity gets a bad rap as far as conventional wisdom is concerned, but quantitative, peer-reviewed, research begs to differ. Study after study underscores the superiority of a passive investment approach. Stick to your guns and remember your long-term plan. 

Sometimes, it can pay to not follow the crowd.

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