Finance Management: A Beginners Guide

Q: What are the biggest mistakes people are making when it comes to their finances?

A: The biggest mistakes people make first off: they aren’t proactive. We have found that almost all investors wish they would have started sooner. In general, people are late to get started on preparing for their retirement. It may be difficult to imagine but the average retiring couple will need to have saved in excess of $1 million to be able to sustain their lifestyle for 30+ years in retirement. Secondly, the emotional mistakes are a killer. This is part of human nature-follow the herd. Take the case of the technology boom in the late 1990’s, the housing boom from 2005-2007 and the oil boom most recently. In each case many, many people lost money, their home, their job or all three because of the emotion called greed. People want to jump in and ride the wave when things are going well. They don’t consider that things may ever change. We all heard the phrases, “the internet has changed everything so valuations don’t matter anymore”, or “they aren’t making any more land”, or “China is going to demand more and more energy so oil prices are only going up.” From our experience it is best to beware of the crowd at extremes and to very suspicious when you hear that this time is different. The other emotion that prohibits people from being successful investors is fear. They don’t view investing as a smart idea when headlines are negative and stock prices are dropping. They don’t want to buy for fear of losing. Consider what may have happened if you had turned away from the crowd as they were stampeding for the exits.  You actually went in and invested at the most scary time, saw the prices stabilize and then rise again. These are the times when smart investors can see the biggest gains.

Q: When should the average person begin investing?

A: I started when I was 14 and began making automatic contributions to my investment by bank draft. It changed the direction of my entire life. It’s never too early to start but at the same time, if you haven’t started yet and you’re 50, don’t wait until you’re 51 or don’t assume it’s too late. If you have no idea where you’re going to end up financially, you are on the wrong trail and you’re all alone. Get on the trail with the guide and get some confidence in what you can expect and what you need to do to better prepare yourself for the journey.

Q: How do people know what is the right investment for them or how do they choose a financial advisor they can trust?

A: One of the sad realities today is that many professionals are spending less and less time with their clients or patients. Doctors seem to only have 10-15 minutes to spend with you as they are forced to see more and more patients. I recently heard a financial advisor speak at a conference and his presentation was all about spending less time with each client. He stressed that he viewed himself as the surgeon. He didn’t want to be involved in the “prep”. He would leave all of the planning and information gathering to his lowly paid staff. His goal was to arrive only for the final implementation of the investment strategy – the “surgery”. He would need to spend 10-15 minutes at most with each client and then be off to do the things he really wanted to do, such as racing cars, skiing, and traveling.  I cringed. I wondered how his clients would react to this presentation if they were in the room.  I wondered if any of the financial professionals in the room actually felt the same. To my amazement, a great many of them were very interested in his approach and wanted to know more about his office procedures. This tells me that actually spending time with clients/patients is becoming more of the exception rather than the rule. But this is the way I would want to be treated and is what I advise any person seeking a financial advisor to seek- someone who will actually spend time getting to know you and be genuinely concerned about your well being.  Investment products should not be discussed until after a thorough discussion of your goals, values and situation occurs. Investments that are confusing, lack historical track record or don’t feel customized to your needs should be avoided.

Q: How can we help our children avoid mistakes that we as parents made?

A: In our society we put a great deal of emphasis on education and knowledge- success in the career and having nice things is quite important. Students learn a great deal about math, science, literature and the arts. They head out into the real world armed with all of this knowledge and often find great high paying jobs in exciting careers. Where we fail though, is not teaching them how to handle the money and wealth. Most make terrible choices which set them back for years oftentimes.  They fall into the trap of excessive credit card debt, finance cars, boats and toys, take out a huge mortgage and barely squeak by from one month to the next.

I have found that this lack of preparation often leads to misery, depression and financial ruin. A foundation called Livastride I formed in 2010 provides financial literacy as a core program for high school students. The goal with this “bootcamp” is to help children and young adults make wiser choices and take responsibility for their actions once they enter the workforce. If more of our youth start to save and invest early while also avoiding the various pitfalls of debt and financial instability, our country will be less taxed and less burdened.

The information has been obtained from sources considered to be reliable, but we do not
guarantee that the foregoing material is accurate or complete. Any opinions are those of Billy Peterson and
not necessarily those of Raymond James. Investing involves risk and investors may incur a profit or a loss.
Every investor’s situation is unique and you should consider your investment goals, risk tolerance and
time horizon before making any investment. Prior to making an investment decision, please consult with
your financial advisor about your individual situation.

Share This