There are hundreds of commercials telling people how easy it is to invest. They will lead you to believe that investing is cheap and a simple process. I don’t think that could be farther from the truth.
First of all, it is hard to be good at anything.
I remember when I learned to tie my own necktie. My dad worked with me for hours that Sunday afternoon until finally I got something that looked somewhat like a good Windsor Knot. It was a long time before I could tie it easily, even longer until it looked right most of the time.
And years later, I could tie a good knot while in my car without the help of a mirror and know that it would look good. And that is just a knot. I didn’t become an expert on all kinds of knots. I wasn’t known as a tie expert. I was just trying to look good in a suit and tie.
I read in a study done a few years ago that to become an expert in any endeavor, it takes about 10,000 hours of work.
The tennis pros playing at Wimbledon this week have certainly put in that much time. It would be crazy to think you could play tennis three days a week for a couple of hours and beat one of those guys even though you might have become a decent tennis player over time.
Now think about this: “How good do you need to be to make the decisions that are going to affect your financial well-being for the rest of your life?”
Can you afford college for your children? Can you afford to retire while you can still enjoy retirement? Will you leave a legacy for your family?
These are pretty important questions. It doesn’t seem reasonable to me to believe that your best shot at making those things happen is with an Internet account, some trading software and an hour a day set aside to figure out your next major move.
EXPERTISE TAKES TIME
If you spent 40 hours a week learning how to invest, it would take you four years and nine and a half months to get your 10,000 hours. At two hours a day, seven days a week, it would be almost 15 years before you would gain expert status.
A lot of investors think the hard part is finding good investment opportunities. I would say that is one of the easier things to do. The hard part is knowing when to sell, when to hold and when to buy more.
There are a lot of moving parts to successful investing and most of them should come with a warning label that says, “If you are investing your own money, you are probably using the wrong part of your brain to make the following decisions.”
There is a lot of evidence that people who managed their own money are much more emotional, and emotional decisions come from a different part of your brain than rational decisions.
Let’s put it all together: If you are an investor that has decided to go it on your own, there is a very good chance that your investment adviser is not an expert in the field and is probably using a part of his/her brain that tends to make poor decisions.
That just doesn’t sound like a very good way to go about managing something as important as your financial future.
Investing is hard. You need an expert to help you get it right.
Scott Reed is CEO of investment advisory firm Hardy Reed in Tupelo. Contact him at (662) 823-4722 or firstname.lastname@example.org.