New shekel notes 370.
(photo credit: Courtesy Bank of Israel)
Imagine the following situation: I recently met with a couple who wanted to know
if they had enough money for both of them to retire within the next 10 years, as
well as marry off their three daughters and provide them with considerable
wedding gifts. This couple doesn’t earn a lot but are financially well off from
investments, and they are expecting to receive a very large inheritance within
the next 15 years. Their daughters are approaching marriageable age, and they
would prefer to rely on their current assets rather than basing plans on a
The couple also said they do not like dealing with
numbers, and they have handled their investments themselves without impressive
When asked how much they are spending on a
monthly basis, the couple gave a total of around NIS 20,000. Based on
experience, unless a couple actually keeps track of expenses, I have learned not
to trust what they estimate. Lo and behold, after further investigation, it
turned out to be double their original estimation! The reason why they were able
to spend so much money even though they were not earning such a high sum was
that they were using income generated from their investments, as well as an
annual gift from their parents to supplement their earnings.Investments
Although they owned funds in about seven or eight different investment accounts,
they didn’t really understand what they possessed. As “do-it-yourself”
investors, they had invested some of their money properly, but they had no
diversification and they had paid little attention to making their investments
more tax efficient. After reviewing their situation, I made some general
recommendations. Then they asked what the next step should
My suggestion was to consolidate all of the different
accounts into one place. Consolidation makes it easier for the investor to
understand what he owns and gives him a much better overall picture of how to
allocate his investments.
In addition, when working with a financial
adviser, it is much more efficient if the adviser can see all of his client’s
holdings, as opposed to paying him for general advice but keeping the other
accounts spread out all over the place.
They disagreed. They said they
felt they were doing fine managing their own money, even though they had earlier
said they hadn’t done too well from their investments.
They didn’t think
it made financial sense to pay an adviser on an ongoing basis and preferred to
take a one-time consultation before continuing to manage their own
This was a classic case of cutting off your
nose to spite your face. They failed to grasp that while working with a
financial adviser meant that they would have to spend some money, they would be
able to achieve the goals they had outlined. It was very clear they were unable
to manage their own finances efficiently, and an adviser would help them get
organized and allow them to meet their goals.
“do-it-yourself” investors tend to underperform the market, and they end up
paying out high sums in unnecessary taxes. Therefore, although it may seem
cheaper for an investor to handle his investments himself, the longterm cost
could be substantial.
A word to the wise
With all the free financial
advice and information readily available, it becomes easy for individuals to
think they can create their own portfolios and manage them on an ongoing basis.
And for those who are truly able to do so, more power to you.
ask yourself whether you really think your understanding of profitable portfolio
allocation at a lower risk is equal to that of a professional adviser. If the
answer is no, find yourself an adviser as soon as possible.
you will be making money by saving a few dollars in fees. For most investors,
that particular saving is only short-lived. The cost you may pay in
underperformance and tax inefficiency could be far more.
contained in this article reflects the opinion of the author and not necessarily
the opinion of Portfolio Resources Group, Inc. or its
email@example.com Aaron Katsman is a licensed
financial adviser in Israel and the United States who helps people with US
investment accounts. He is the author of the book Retirement GPS: How to
Navigate Your Way to A Secure Financial Future with Global Investing.