Great investors know the best financial advisor is YOU

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InvestorsA Beginning Investors’ Story


Investing on your own can seem scary. The world of finance appears to be, at least in the beginning, a complex maze of numbers and movements, leaving new investors wary of going at it alone.

I used to think of the finance world as a bunch of slick-haired Pat Riley types yelling ‘buy’ and ‘sell’ across a crowded room. Heck, even a stock ticker bar has confusing hints of the matrix if you don’t know what you are looking for.

The good news is, becoming an investor isn’t half as scary as it seems with a bit of education and a splash of gumption. The really good news is that investing on your own can save you a ton of money over the course of your lifetime without adding additional risk.

In a post-pension world there may not be anything more worthy of your time. So in this two-part series we will cover what investors need to know before they start, the 3 most important investment statistics, and 3 critical pitfalls to avoid, but first a quick story.

When I began investing on my own I was only 13 and had yet to develop that sense of rational fear that pulls us through most of our adult lives. Coming from a family where financial education was highly valued, I had learned to save as much of my money as I could from an early age.

Once I hit adolescence that pool of cash had grown sizable enough that there were alternative options to my Junior Savings Account, which at the time yielded a sub-inflation rate of about 0.9%. At first the options seemed overwhelming, after all there were bonds, stocks, mutual funds, money market savings accounts and of course my twin size mattress.

Being the stand-up folks that they were, my parents encouraged me to join other investors in buying shares of a group of socially conscious funds. These were mutual funds – or groups of stocks – which invested purely in companies involved in ethical businesses.

Overall I had some strong short-term success, enjoying the monthly statements with giddiness normally reserved for Christmas. Then something happened… a recession. After years of diligently investing my hard saved money I suddenly found myself with less than what I had at the start!

Learning About Risk


This was a pivotal moment in my financial education and even though it hurt at the time, I am better off because of it. That one downturn coupled with the subsequent rebound taught me 3 very important things about investing:

  1. It is very possible to lose money investing
  2. If you have the ability to ride out periods of losses you will experience even more over the long-term.
  3. You have to know your risk tolerance

Before that event, the stock market and investing as a whole seemed easy to me. Investors simply pick some fun things to invest in, buy some shares, and as those companies earn more money they pay me over time. Piece of cake right?

What I learned was that if you are not wise and do not invest over an appropriate time frame one downturn can clear you out.

Having the ability to invest over a longer time frame, where I did not immediately need to remove my money from the investments meant that I could ride out the recession and enjoy the long-term success trends that investment markets offer.

That difference between short-term and long-term investing is one of the most important aspects for individual investors. Another key principle is knowing and understanding your risk tolerance.

What Good Investors Know – Risk Tolerance


Risk tolerance has two main components; at its core risk tolerance deals with the amount of financial risk you can handle. I however, take it a step farther and add a second component, the amount of emotional stress you can handle.

Your financial risk tolerance deals with how long you can afford to wait if things get dicey.  For example, if you know that your car is on its last leg and you have very little money available to purchase a new one, that is definitely not a good time to lock up all of your savings in investments.

The general rule of thumb is that you should never invest any money that you reasonably think you might need in the next 5 years. That time period would allow you to ride out a downturn based on historical averages.

Keep in mind that this concept means revisiting your investments each year and may require you to withdraw some money to keep yourself appropriately liquid.

The emotional stress component of risk tolerance might be even more important if you decide to invest on your own.

When I began investing at a very young age the emotional risk shouldn’t have mattered much. I knew my parents would take care of me even if I lost all of my savings through investments.

However, even though there shouldn’t have been much stress involved, I found myself deeply upset by any setbacks. It turns out that I am a bit of an anxious person and the idea that I would lose something I worked so hard to gain really bothered me.

This is when I realized that my emotional or stress tolerance was not as high as I had anticipated.

In itself there is nothing wrong with that. You should never be proud or ashamed of your risk tolerance, it just is what it is, but when investing it is good to at least know what it is.

At the end of the day individual investors are the one who has to be comfortable with where their money is and as an investor, you are the one who has to sleep soundly at night.

It is a personal decision and is yet another reason investing on your own makes sense. If you aren’t comfortable with the amount of risk you are taking then you are more likely to react too strongly when things change.

Being able to keep a level head by owning the right investments – and more importantly being actively involved and knowing what they are – is a huge advantage over the long-term.

I have personally talked to far too many people who don’t even know what the bulk of their retirement savings is invested. In my book, that is a scary prospect.

What Good Investors Know – Ignoring the Herd


While adapting your investments to fall in line with your risk tolerance is a huge benefit of becoming your own financial advisor it isn’t the only advantage. 

You also are not a member of the Wall Street crowd after all and that means you are less likely to fall into the short-term herd mentality trap.

Investors typically see more success through less action and many times brokers see moving cash around to different investments as a way to prove their worth.

Obviously those two positions oppose each other, which is making many folks in the finance industry question the true function of advisors in the first place.Individual investors will also be able to react quickly when their lives change.

Maybe you lose a job or find out there is going to be a new addition to your family. Not having to go through a third-party to realign your investments can save time and quite a bit of money depending on how their commissions are structured.

That gets us to the most important reason you should consider investing for yourself: expenses. 


What Good Investors Know – Expenses Destroy Wealth


The financial advisor industry it littered with hidden expenses and fees. If you have ever sat down with a financial advisor you were most likely recommended a list of funds to invest in. What you might not know is what fees you are paying or already paid for these funds.

One example is the notorious 12b-1 fee. Many ‘investor recommended’ funds hocked by advisors contain 12b-1 fees. This is a fee that you pay for the ‘marketing’ of the fund.

In other words you are paying the advisor, through fund kickbacks, for the privilege of them telling you to invest in it.  Now just so we are clear, that adds absolutely no value to a fund. Those fees can even cost up to 1% of your total investment!

One percent might not sound like much but if the market only returns a historical average of 7% a year, that means you will automatically lose 15% of your potential gains in year one! If that sounds confusing don’t worry.

All of these fees are included in a funds’ expenses, so they show up in the expense ratio which will be covered in part 2 next week.

If you do nothing else as a result of this article, at least reach out to your advisor or even look at your own investments and try to get a handle on what expenses you are paying so they can be minimized. For example ask about marketing fees like the 12b-1, trade commissions and annual management fees charged by your advisor.

Eliminating these by becoming your own advisor can have tremendous benefits over the long-term. Plus, if you invest for yourself, follow a few basic principles and invest for the long-term you will succeed by default. Not to mention that you are the only person who truly has your best interests at heart.

Great, so you think you might be willing to give it a shot and join the hoards of investors already managing their own assets. What are your investment options and where should you invest?


Money Market Funds


Money market funds are the checking accounts of the investing world. These funds are meant to be very liquid, meaning that you can get access to your cash very quickly. Plus, money market funds are very stable.

The flip side of that stability is that they offer relatively consistent, but lower interest payments to investors. Money market funds invest in short-term securities and high quality debt, making them the ideal place for cash that you might need in the near future and are not willing to tie up for the long-term.

Personally as an investor, I use money market funds to hold cash I have set aside for the following years personal retirement contributions.

This way the funds are there ready to invest, but because I still have quick access to them they also make up a part of my emergency fund in the current year.




Think of bonds as loans you make to companies. You will often hear them called fixed instrument securities and they are an agreed upon loan that the companies themselves has structured.

By purchasing bonds, either individually or as a part of a mutual fund, you have agreed to the terms the company laid out and are loaning them your money. The result is that you now have a contract with the company to be repaid over a specific period.

There are several different types of bonds, and each and every company gets their own risk rating. The higher that risk rating the more they will have to pay the investor to borrow the funds.

That might sound simple but that additional cash also comes with the risk that they might go belly-up and pay you nothing at all.

It is a delicate balance and for that reason, many investors choose to use mutual funds for their bond exposure. Those funds will diversify the individual bond risk at a far lower cost for individual investors.




Also called a security or equity, a share of stock represents ownership in a company. In essence when an investor buys a share of stock they now have a contractual right to share in the company’s earnings.

Common stock, which is typical for most regular investors, even comes with voting rights. This means that as an investor you would have a vote at the shareholder meeting in proportion to your level of ownership in the company.

Don’t worry though, for most of us regular folks we simply vote by proxy, meaning you don’t actually have to fly out to a meeting. Of course you also have the option of not voting at all.

Another feature of common stock is the ability to collect dividends. These are portions of the company’s earnings that are paid out to the investor directly, typically every quarter.

Dividends are a fantastic way to grow your wealth over time and indicate strong company performance because they represent sustained earnings.

Stocks also rise and fall in share price based on predictions about future earnings. If you were to purchase a stock for $20/share and the outlook for the company improved, it’s price would likely rise to something like $22/share and were you to sell the stock you would have netted yourself a $2/share ‘capital gain’.

In short, you would have made money in addition to the dividends (earnings sharing) you received. Of course that also works in the other direction!


Mutual Funds


These funds are pools of money that individual investors like you or me can buy into. With that pool of money a fund manager will go out into the financial markets and invest in stocks, bonds, & money market instruments on the investors behalf.

The big benefit of mutual funds is the ability to diversify your investments at a low-cost. These funds will invest across a large number of different companies meaning that you are spreading your risk (diversifying) and not keeping all of your eggs in one basket.

What allows funds to do this more cheaply than you or I could is the scale they operate on.

Each fund will have a different objective so there is still research to be done. Before you buy into any mutual fund you should read through the prospectus which gives an overview of what returns they fund hopes to accomplish, what they invest in, and several of the basic metrics and ratios like the funds expenses.

All of this makes mutual funds fantastic for new investors, but watch out for the expense ratio! – more to come on that in the next post.




An ETF, or exchange traded fund, is similar to a mutual fund but it offers far lower expenses. That means you can keep more of the returns from each individual investment in the ETF.

It offers lower expenses by adopting a passive strategy without an active fund manager buying and selling investments all the time.

ETFs will actually track indexes like the ones you hear about on the news – FTSE, S&P500, Dow, etc. As a result, by investing in ETFs an investor can gain access to an entire range of stocks or bonds with one ETF share purchase. These ETFs trade on exchanges, hence the name, so you will pay a normal brokerage fee to buy and sell.

Note: If you are paying over $7 for a trade, no matter how many shares you purchase, you should consider switching your investments over to a low-cost investment house like Vanguard.


Where to Invest


So there you have it, several reasons you should consider investing on your own as well as the basic investment options to choose from. 

To get started, just search around on Vanguard’s website to familiarize yourself with what options are available in the categories we just looked at.

Vanguard has excellent tools to analyze different funds and stocks, plus if you open an account you will have access to chat with someone to answer some basic questions.

The company has several sites set up specifically tailored to the country you live in, so be sure you are in the right section.

Vanguard also offers some of the best, low-cost investment options around and is known to be an industry leader. I have used Vanguard for years and could not be more pleased with the results.

In Post 2 we will explore some of the key stats you need to understand before actually choosing any investments as well as a few result hindering pitfalls to watch out for.

So what do you think, are you ready to become your own financial advisor?

Contribution By: Sarge began writing just this past year, following a horrendous experience with a financial advisor. Combining a knowledge and passion for finance with a real belief that through some simple education everyone can achieve the financial freedom we all long for – The Wealth Sgt was born. Check out more from Sarge over at The Wealth Sargent or on Twitter @TheWealthSgt.


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  1. Excellent guide for investors. A lot of great information in this post. The one fallacy is that not every investor is cut out to do this themselves. As a long-time fee-only advisor I have encountered the former clients of a number brokers and advisors who charge outrageous fees and/or sell financial products that seem to enrich their bottom line more than that of their clients.

    But to assume that all financial advisors are out to overcharge and rip their clients off? Really? Isn’t that much like saying because someone of a given ethnicity or race did something bad all people of that group are evil? Why not teach your readers how to find an adviser who will work in their best interests? Not all people are cut out to manage their own investments or want to.

    I encourage full disclosure of all fees and expenses. I will also say a good financial advisor can provide value that exponentially exceeds their fees. For example keeping investors from following their own worst instincts at the bottom of a market like 2008-09.

    1. Roger –

      I agree with you to an extent that not everyone is cut out to invest for themselves. The argument laid out above is really centered around the idea that with some self education, hard work and an open mind you really can invest well without paying for professional help. Of course it involves time and effort to learn how to invest wisely and ensure that you have an appropriate amount of risk in your portfolio.

      Financial advisors are not inherently bad people obviously and I would never generalize to that extent. They require SOME fees for their services and that is fine. However, my argument is that by learning to invest properly on your own you can reduce the expenses and fees that would otherwise go to a broker or advisor and enjoy the compounding benefits of those dollars over time. As an advisor yourself I am sure you can attest to the importance of keeping fees low. One thing I will say is that I am strongly against by the use & overuse of 12b-1 and other marketing fees within the industry.

      Your point about keeping investors from following their worst instincts and acting too strongly based on emotion is a fantastic one. However I believe this too can be done alone, with the proper mindset. In fact it is (spoiler alert) one of the pitfalls I will highlight in part 2!

      1. I realize that some of what you say is based on my understanding of the Canadian financial services landscape where there are largely loaded, expensive mutual funds and fee-only advice is not as common as it is here in the U.S. Whether someone does it themselves or hires an advisor understanding their finances and the world of investing is a good thing.

        Like any service an investor has to decide if the savings in fees from doing it themselves will payoff in a better result or whether they could benefit from the knowledge and perspective of a professional.

    2. Also the mutual funds that carry expense fees sent passing on all those fees to an advisor. Actually the advisors only get a portion of those fees. And people probably don’t realize the tremendous amount of energy and time that was quality financial advisors invests into every client and relationship. I don’t know why some people begrudge an advisor making a living. Do you get mad at the money you pay your doctor or your lawyer for the services they provide? Let me tell you the advisors I work for spend WAY more time with/for their clients than my doctor spends with me. And my doctor probably won’t sit and cry with me if my husband dies.

      As in any profession there are bad apples. No doubt. But people also need to take responsibility for themselves. I’ve sat in meetings where the FA is telling the clients about the fees and expenses and they just say “yeah yeah, I trust you” and sign. They don’t read any of the data. I know mutual funds send out booklets about what they do. They seem lengthy. However, the tables that show fees and expenses are VERY clearly spelled out. Those funds also cost money to run! Firms have to pay for the privilege to trade on the exchanges, they have to pay for the licenses and continuing education of the staff. For every licensed FA there are generally 10 more licensed people in the background making things happen. The cost of keeping up with compliance changes and legal changes. Tax reporting and compliance. It’s not cheap. Can places do it for cheaper, yes but they are using completely different business models. They outsource parts of their business they don’t have places where you sit with someone that looks at you entire financial picture. Can you ask strafe or Ameritrade computer accounts how to allocate your 401k? Can they help you determine the option that is best when deciding how to begin withdrawing your pension? Do they help you choose the Beth method for drawing your social security? Best ways to extract income from retirement to avoid running out of money? There is SO much that a great financial advisor does for their clients that have nothing to do with earning a commission. We have clients that we meet with every quarter. It takes about 2 hours to prepare for those meetings. Then the hour long meeting itself. And most of the time we are not making any new money on those clients. We are keeping them apprised of where they stand. Not selling them a product.
      There are pieces that people can handle on their own, but there are a lot more pieces of the puzzle where an advisor is a good thing to have!
      Please note, I’m a licensed financial employee but I am NOT an advisor and I do not make a living based on client transactions. It just frustrates me that good advisors are looked at as money grabbers because of a few bad people. I see the good they do every single day.

      1. Excellent analogy regarding fees paid to a financial advisor compared with other professionals. My perspective is as a U.S. based advisor and I realize that things are a bit different in Canada in that fee-only advice is not as common (as I understand it) as in the U.S.

        Certainly there are individual investors who are capable of doing everything themselves. There are other who think they are an learn the hard way. The advice rendered by a competent financial advisor who truly puts their client’s interests first is worth the fees charged, just like the fees paid to a doctor, attorney, tax professional, etc.

  2. Interesting… I do need to learn more about all this as I really don’t know much. Thank you for putting this in nice plain language and I look forward to the next installment.

  3. Greetings Mr. CBB,

    Great article, your thoughts are very much in line with some of my own. Too many people go about life wearing rose colored glasses believing that things like retirement will just work themselves out in the wash. However this could not be further from the truth. Our financial freedom is no one’s problem but our own. Ignorance is no excuse when it comes to safeguarding ones future.

    I look forward to reading more!
    Thanks again.
    Rick Laming @

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