An Educated Investor

Some of you may remember the tag line used by Si Syms, founder of Syms’ chain of retail clothing stores:  “An educated consumer is our best customer.”

Syms sold brand name clothing for men and women at discounted prices and used the tag line in his radio and television advertising.  Si Syms was correct about his best customers since they had to know the brands well enough to know how good his prices were.   Syms filed for bankruptcy and is no longer in business, a likely victim of the retailing onslaught by Walmart, Kohls and Target.  Syms was quite successful before the big guys came along and much of their success was due to their advertising about the educated consumer.

How does this relate to the world of investments and finance?  I have often said that an educated client is a good client.  An educated client is one who is financially literate and knows the difference between stocks, bonds, mutual funds and ETFs.  He or she is not an expert or professional; if they were they would not need my services.  The facts are many people are not as financially literate as they should be.  This is not necessarily their fault as most people have had no formal training in personal finance or investments.

We can categorize investors into two groups.  The first manage their investments on their own, and the second are those who work with a professional.  We will find educated investors in both groups, and conversely, non-educated investors in both groups.  You may wonder how a non-educated investor can manage investments on their own.  Keep in mind that when I refer to a non-educated investor I do not mean an uneducated person, but rather someone who may not be as financially literate as they should or may not know much about investments.   Many employee participants in their employers’ 401(k) plans are responsible for making investment decisions regarding their 401(k) accounts but are uncomfortable doing this.  They often make bad decisions resulting from lack of investment knowledge.

As a financial advisor I have a responsibility to make sure my clients understand the recommendations that I make to them regarding their financial plan.  I am responsible for educating them about recommendations I make either about a strategy, financial product or solution to their financial problem.  I cannot charge them for all of my time spent educating them since this could make my fee prohibitive.  This relates to my earlier statement that we sometimes find non-educated individuals who work with advisors.  I am not speaking about them when they first seek the advice of a professional, but even after they have been working with a financial advisor after a number of years.  This results from advisors who do not adequately educate their clients because they are unable to charge for their time, or do not believe it is part of their job.
 
As a tax practitioner I have witnessed too many instances of individuals purchasing insurance products or making investments that were not appropriate for them based upon the advice of so-called financial advisors.  It is imperative that financial professionals educate their clients to fully understand their recommendations and/or solutions so that the client will not be underserved.

Is your advisor educating you?

New Year's Financial Resolutions

So, you have resolved to lose weight or quit smoking in 2012.  Good for you.  Have you thought about making some financial New Year’s resolutions?  If not, here are some suggestions to help you get started:

1.     Spend less and save more.

2.     Increase your contributions to your 401(k), IRA or other retirement plan in 2012 (this will help you with number 1).  Here is a hint to help you…..contribute the two percent savings in the Social Security Tax for 2012 to your plan (you won’t miss it).

3.     Reduce or eliminate credit card debt.

4.     Write down your financial goals and refer to them often.

5.     Review your investments and re-balance if necessary.

Be sure to see how well you did next year at this time.  Give yourself a pat on the back if you succeeded in accomplishing all of them.  Don’t be too discouraged if you succeeded with more than half of them.  Start a new list for 2013 and include the ones you did not achieve from 2012.  If you failed at all of them seek professional help.  Enroll in a weight loss and/or smoking cessation clinic and meet with a financial advisor for a consultation.

One last thing, if you do not have a will, get one made.  You should not be caught dead without one.