From time to time, clients ask me to comment on what they hear from financial advisors on the radio. The first thing I try to explain is these are paid advertisements. Local advisors pay for their time on the radio in order to generate leads. Some, who may be nationally syndicated, make a significant amount of their income from their sponsors, the goods and services they tout, or their own systems and seminars to help people become debt free or wealthy.
Because of these clear conflicts, we must be wary of any advice we hear on the radio. Personally, I don’t listen to any of it. Many years ago, I decided to eliminate radio and television news media from my life. Since then, I have gained greater knowledge and perspective than I ever thought possible. Because I limit my news diet to non-hyped content, I no longer worry as much about things I cannot control.
Don’t let emotions get the best of you
Worry is a powerful emotion. Saturday morning advisors shape their message to assuage our fears of market losses by asking us to trust their system or product and we’ll never have to worry again.
In reality, there is no system or financial product in existence in the world – nor will there ever be – that can completely eliminate financial risk from our lives. Most trading systems and structured financial products are designed to appeal to our emotions and ignore the logical relationship between risk and reward.
It can be difficult to identify and quantify risk and reward in many areas of our lives, but it is easy to identify and manage it to our benefit in the highly efficient securities market. In securities and in life the higher the risk, the higher the potential reward. While our emotions may want to believe someone has a system that will tell us to get out of the market before it cycles downward, there is no such system. The future movement of stock prices cannot be predicted with any consistency.
Learning to accept the reality of risk
Unless there is no need to achieve any return on our money, all of us have to accept some level of market risk. This means we must expect our portfolio to unexpectedly move the wrong way from time to time. Unfortunately, it’s often easier to convince someone of a system or product solution that promises to be “risk-free” than it is to help them understand and accept the truth about risk and reward.
The good news is, a diversified investment portfolio built specifically around your financial goals will mitigate unnecessary risk and use market returns to achieve success. Sometimes I wonder why we don’t hear more about the real way financial markets work when listening to the radio on Saturday morning. Maybe the reason, besides the emotional pull of fear, is that the truth is boring and complicated. Who wants to listen to boring and complicated concepts on the radio on our day off? Radio and television media is great for entertainment, but terrible for conveying important concepts like investment philosophy.
If you want to understand more about our investment philosophy at Schulz Wealth, we are here and available to visit with you. You may also watch a simple presentation I recorded on YouTube by clicking: Investment Philosophy Narrated.