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Learning From Our Mistakes (And Not Letting Our Egos Get in the Way)

We are always learning and challenging ourselves to find new ways of thinking about things. So this topic comes from the fact that the market has been performing very well in recent years ­– especially the equity markets ­– and, as financial advisors, we must be careful not to take too much credit for that. We have to set the right expectations with clients and help them understand that these types of returns are not to be expected every year.

There are two different mistakes that we often see, both in ourselves as advisors and investors, and also in our clients as well:


This is often a common trait (or problem) that we see in the investment world. It is a dangerous mindset that, I think, can make one overlook or become blind to certain risks. Whether a client or an advisor, it doesn’t matter, we still see overestimating and underestimating competency and other factors, such as luck, that often leads to a particular outcome. We saw this a lot in March and April 2020 when the market was crashing.

One client we’ve known for nearly six years wanted to go into individual stocks. He selected the stocks thinking they would perform well. Naturally, they did. In fact, they saw a strong performance that resulted in making this client repeatedly overconfident in his stock-picking abilities.

I cautioned him (and her) about individual stocks and advised them about the risks. They were picking stocks when the market was bottoming and, of course, everything went up after that, except for some stocks that really got hammered.

In their early 60s, these folks really did have a positive outcome, while also thinking they were the next Warren Buffett, and believing they could really pick stocks while ignoring their losers and acknowledging their winners. Personally, it was nothing more than a lot of luck and I don’t think they learned anything from it.

While we’re in this period where the market is performing pretty well, you might get away with a little bit more. I understand that. However, it does concern me – for the long term – what it is going to mean for their portfolio when we go through an extended period of time in a market where it’s a bit more difficult.

I’ve tried to compromise with them since then, to meet them halfway, so to speak. The portion of their portfolio that I consider being the “core”– where we use mutual funds and ETFs to spread the risk around – is where we utilize the professional managers we work with. So, what I would try to do is encourage them to lean on us for our expertise.

Having said that, if they wanted to have some fun and do some speculating, they can do that – and we can accommodate that – but I would suggest limiting the amount of exposure they have to that over a certain period of time.

The Lack of Confidence

We often see this in clients as a barrier. Often, it is an inability to make decisions. Typically, a lack of confidence can often lead to not being invested, simply sitting on the sidelines, and missing out on any gains the market is having. We have clients in their early 60s who got on the sidelines in March or April of 2020 and were too scared to get back in.

A lot of times, clients don’t understand investing. Naturally, we’re here to educate them and to help them understand. However, the natural reaction is to either stay on the sidelines or insist on being in investments that are too conservative for them, sort of like what I spoke about in a previous article, “Is Playing it Safe Too Risky?”

In this case, by thinking they were “playing it safe,” they easily lost more than six figures due to their inaction. I had contacted them several times early on to advise them that it was time to ease back in. Time was whizzing by and they were still scared. Subsequently, the market hit new all-time highs. That was when they realized they should have been listening to me and easing back in.

This time, it took an external little nudge beyond my calls to motivate them to rise up and take action. In hindsight, they understood what was happening and admitted to making a mistake. It’s likely we won’t ever have this conversation again, because they learned from their mistakes and not letting their egos get in the way.

Good Training Counts

Hefren-Tillotson has taught us all to think long term, to keep a long-term perspective, to not let the day-to-day noise interfere with sound decision making, to focus on the fundamentals, and to lean on others for their expertise and different points of view.

In the past 15 years in the financial services industry, I think the value of having an advisor is less about picking mutual funds or specific investments and more about the psychological aspect of it. By this I mean, having someone that will keep a steady hand on the wheel when it is difficult to do so, and having an objective point of view rather than an emotional one.

The solution, I believe, is to simply be honest with yourself, to know what your areas of expertise are, to know what your blind spots are, and to not be afraid to take advice from others who are in the know in certain areas that you are not expert in.

If you would like to learn more about how we approach meticulous wealth planning and long-term planning and investing, contact us today.

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.

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