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A Financial Planner Confesses His Sins

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Forgive me internet, for I have sinned. Despite earning a finance degree, passing the CFP® test, completing countless hours of continuing education, and working as a financial planner for over 11 years, I still make some of the same financial mistakes that I advise clients against.

By confessing to these financial sins, I hope to help you avoid them and to improve my own finances. These financial confessions also create a perfect case study on why even financially sophisticated people could benefit from a financial adviser.

Confession 1: I’ve let emotions hurt my personal investment decisions. Countless studies show that investors cannot consistently predict short-term moves in the market. Developing an asset allocation that is appropriate for your risk tolerance and lifestyle and sticking to that mix through good times and bad is the advice that I, along with many other financial advisers, regularly give to clients.

It’s good advice. It is just not easy to do with your own money.

Even if you know what the right decision is, emotions can get in the way of acting on that decision. More than a year ago, our employee retirement plan switched custodians and, in the process, liquidated my account. While the choice to sell was not mine, I decided not to re-buy immediately. I tried to time the market, because pundits were almost universally sure that the market was overvalued.

Despite expectations, the market had already run up a great deal following President Donald Trump’s election. And people have been warning that the market is due for a steep pullback ever since the Dow was around 10,000 in 2010. They are still screaming at its current level, above 24,000. Eventually they will be right. But no one really knows when that day will arrive.

Even if the market had declined, my decision to be out of the market was still ill-conceived. U.S. stocks made up only a portion of my portfolio. I made the decision to stay out of the market emotionally, without a plan for when to reinvest. These are funds that I won’t be using for 30 years or more; there is no reason why they should be sitting in cash. Yet with the market continuing ever higher, it’s still hard for me to buy back in and admit my mistake.

Confession 2: I don’t have a true financial plan. Letting emotion affect my investment decisions was a symptom of a bigger problem. I am fortunate in that I grew up with parents who taught me the value of a dollar and the importance of living within your means. I track my finances using Mint. I know that my income has consistently exceeded my spending and that my net worth has consistently increased. I am in good financial condition, and have been content enough with that. I have never formalized my financial plan by setting clear goals or held myself accountable for consistently making decisions in pursuit of those goals. I have good basic financial habits, but there are still plenty of ways I could improve my positon by systematizing my financial decisions.

Confession 3: I’m underinsured. Like many people, I know insurance is important, but I have put off the chore of actually buying it. I’m a healthy 34-year-old, so disability and death in the near future seem inconceivable. It’s an unpleasant topic to think about and, without a financial adviser, there is no one to hold me accountable for going without coverage. Delaying has also reinforced my bad behavior, because each year I go without insurance, I have saved money by avoiding premiums. However, I recently welcomed my first child into the world, and now my procrastination could have a disastrous impact on him too.

Confession 4: I don’t have estate planning documents. I have put off acknowledging my own mortality not only in forgoing life insurance, but also in failing to draft estate planning documents. Though I won’t face an estate tax, now that I am a parent these documents have become even more important. I need to direct the disposition of my assets and name a guardian for my son. Insurance and estate planning are both easy tasks to put off, but invaluable when they are needed.

Confession 5: I don’t spend enough time on my finances. As my career choice may suggest, I am very interested in money management and financial planning. But after a long day or week of work, these topics are the last ones I want to deal with at home. As part of my job, I enter into engagement agreements with clients that set forth our expectations for the scope of a project and when it will be delivered. These contracts keep me focused and ensure that I follow through in a timely manner.

When there’s not a business relationship involved, however, it becomes much harder to devote the time to research and plan all areas of my own finances, and to do so with proper depth. I informally help my father with his finances as well, and observation suggests he would obtain better results if it were a formal business agreement.

Confessing these financial sins gives me some solace. Hopefully, this exercise will prompt me to address some or all of these issues. I readily admit that I would be better off if I had a fiduciary financial adviser to help me with my finances, but I continue to try to go it alone, since this is my area of expertise.

Palisades Hudson’s clients are smart, successful people, many of whom could do the same work that we do if they chose to pursue it. They hire us instead for a variety of reasons. Some acknowledge that their time is better spent pursuing higher income through their own careers. Others would rather have more free time to spend doing what they love, with those they love. Some are highly skilled in other areas, but admit to being challenged when it comes to understanding money. Some of our clients are just more willing than I am to confess that, on their own, they would let emotions impact their financial decision despite knowing better in theory.

Whether or not you work with us, email me at ben@palisadeshudson.com or comment below to let me know why you choose to hire a financial adviser – or not.

Client Service Manager Benjamin C. Sullivan, who is based in our Austin, Texas office, contributed several chapters to our firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55, including Chapter 13, “Federal Income Tax,” and Chapter 16, “Investment Psychology.”

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