Friday, April 9, 2010

Setting expectations and viewing results based entirely on returns

People look for financial planner because they need help and want to get their finances in order. They sack planners because they don’t earn a “big enough” return.

It’s a recipe for disaster.

If you are an average investor, you are looking for a partner, someone who will help you develop strategies that enable you to reach your long-term goals. In most cases, achieving that success involves participating in stock market gains during good times without losing your shirt when the market turns bad. For most people, it is more about avoiding surprises and losses than it is about getting rich quick.

But planners always get dumped because they “failed to beat the market” each and every year.

For starters, the best way to consistently beat the market on the short term is to make focused, concentrated bets that pay off well when you are right … and then be right all the time. When you are wrong, those bets backfire big-time, which is precisely why financial planners push diversification, asset allocation, and long-term thinking.

Financial planner offers this kind of long-term performance what allows people to ride the market rollercoaster and get off at the end with a big smile on their face.

Financial planner can control many things, but stock market is not one of them. If he does a good job and you sack him because the market is bad or you think you can get a better result somewhere else, you are making a long-term decision based on a short-term feeling. There always be one more time when the market goes down and you will fire that person for bad performance or the market goes up and you don’t feel like you got every possible dollar out of it.

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