Unlike any other activity, one of the most ironic things about investing is that no matter how much experience you may have, whether it be as a past stellar hedge fund manager or a top-rated portfolio manager in Florida with an unbelievable track record, the market doesn’t care.
Every day is a new day in the markets and none of us have a crystal ball to unveil what the day will bring. Speaking of day break, here’s a fun anectode that may help you during this jittery on the brink bear market.
It’s graduation season and I’m someone who is obsessed with commencement speeches. You can always learn some useful nugget of wisdom from anyone, not just from famous alum that dropped out. One of the most important lessons I’ve learned recently is to focus on one day at a time, not for a year or few months. A day.
In an addictive go-getter culture, we are obsessed with achievements, accolades, and titles instead of progress and enjoying the next leg on the journey. After all, it’s the best part. In investing, if you’re only in it to win it and selfishly expect to cash out the next day, good luck to you. You’ll be more financially, emotionally, and mentally secure focusing on deploying capital for the long haul instead.
My rule of thumb for every major purchase >$20k is if you don’t plan on using the item or don’t hold on to it for more than ~5 years, it’s probably not worth it. From real estate to liquid investments, if you plan on withdrawing your money in less than 5 years, you’ll most likely be spending more to acquire it than to let it vest. It won’t grow nearly as high as if you waited longer, not to mention the higher capital gains tax you will incur the earlier you need to withdraw for your dream home or super car you’ll soon regret.
Year after year as I rewatch college commencement speeches, focusing on ‘one day at a time’ is a prominent theme. Alongside the age-old question of “how to be successful”, luck and timing aren’t from genetics, you create them through your habits, persistence, patience, and perseverance. These traits are underrated in this day in age and I hope my fellow graduates next year will slow down a bit more to earn more in the end.
After all, contrary to popular belief, to go faster, try slowing down and taking your time. It works 99% of the time, except if you don’t work with a fiduciary or have too much enthusiasm as a day trader.
Advisor Dilemma
No matter your age, testing out an advisor from various brokerages is a no-brainer. Beyond the deployment of capital and returns, a trusted fiduciary will teach you how to be more emotionless and in it for the long haul. To not make sporadic purchases that you see your friends make is very difficult or not buy into every dip you see is even more impossible however an advisor, will hopefully dissuade you from those mistakes and make your life easier in return.
Obviously, if you are only using your piggy bank savings and not even in your prime earning years, paying a management and performance fee for an advisor around .3-1% (the average) isn’t favorable. You’re better off letting a monkey throw darts at a wall to pick your allocation and save on those fees. Luckily with dozens of brokerages now offering zero-commission trading, although not recommended, you can make as many moves, adjustments, and rebalances as you need to when you’re young. After all, it is better to make these mistakes and risks earlier than later.
If you’ve survived the pandemic, congratulations! You are most likely wealthier although possibly more fearful this time around without a steep K-shaped recovery in sight. Your plan on increasing your income sources to the base minimum of 4 and possibly to millionaire status of 5-15+ will all require time, energy, and effort over the next few years that you may not seem to have going into the summer months. This may be the most opportune time then to test out an advisor at your closest bank or your own bank to offer you the most favorable fees.
Note: For those in financial services, you will not be able to trade individual stocks due to conflicting interest and insider trading.
Portfolio managers and advisors have various fee structures ranging from a percentage of AUM or a base monthly fee or charge per hour so make sure you know what you are getting into before you commit. Typically, once you invest more than $10m+, your fees will generally dip but overall, it is still a large percentage the larger you get!
Investing Whole or Half
I tried the whole mix: robo-advisors, in-person and virtual portfolio managers in the past, yet at my age in college, I continue to go back to managing my own portfolio for a few main reasons.
- I have no reason to cash out or sell my investments within the next 5-10 years
- I have a 6-12 month emergency savings account on deck
- Own enough real estate for now
- Have a separate ‘play’ money account for individual swing trades since I can stomach the risk at my age the best
- Passive long-term approach > active day trader ALWAYS
- Become accustomed to the stealth wealth minimalist lifestyle that buying more doesn’t improve my life.
One of the most common questions I hear students my age have is how much they should individually manage versus split with a professional. To test the waters, this is a great starting point and fun game to see which option to stick with!
FYI, it’s not surprising to yield more during H1 or a quarter lets say than a portfolio manager even with no experience. Most of it boils down to luck, timing, patience, and knowing how much you can handle mentally and emotionally.
Given what’s certain is uncertain, I would give the base minimum to anyone to manage if you are on the fence then slowly increase your allocation from there. It is certainly a monthly expense you need to keep tabs on as it can eat into the budget, especially during unpredictable times more than ever before.
Money managers need to make a living so they get paid regardless if your portfolio is in the red or green.
Ultimately, if you’re looking for someone to manage your money it is most likely due to these factors:
-Inherited lump sum or have too much to spare feeling overwhelmed to manage yourself
-Not enough time to track, understand and unpack the markets for me + loved onesy
-Don’t have any experience and don’t trust thyself
-Don’t see any major gains from your own trading
-Markets make you paranoid and you feel unsafe with yourself
-Ditched retail trading after the meme short squeeze saga in 2021. The rest is history.
More or less these are the top 6 reasons investors switch over to portfolio managers. I’ve asked myself all these questions over the years and have found during times when no asset class or individual asset seems to have any beaming opportunity, I better save the thousands per month and wait out the trouble since many times that’s the best thing you can do!
Managing your money can feel like a full-time job or you can ask someone whose actual job it is to do it for you. No matter what you choose, it has to fit you since it will always fit differently for someone else.
Last but not least, remind yourself:
-You can let your money work for you over time in diversified low-cost baskets of ETFs
-Bull markets are more common than bears
-Overtime, not tomorrow, the market always recovers and erases previous losses.
You can make your money work for you or against you! It’s all mental and relative at the end of the day. Thankfully the 10 and 30-yr Treasury yield lowered and inflation has seemed to hit its peak in the last week doing the Fed’s work itself!
Nothing in life is free, even the management of your hard-earned savings, lottery earnings, piggy bank, divorce settlement, and income sources.
Your trained mindset and patience level will dictate the direction of your capital.
At least it’s not a zero-sum game! You’ve got options.