It's what I call "car-mechanic syndrome"...
That's when your car makes some funny noises, and rather than watch a YouTube video and try to fix it yourself, you take your vehicle to the body shop.
After popping the hood and casting his master eye over its contents for a few seconds, the car mechanic tut-tuts before making his prognosis.
"Well, it looks like your carburetor lower incisor has a myocardial fibrillation, and we'll have to drain the accelerator abscess and replace the dynamical half plug," he says.
Well, he doesn't say that, specifically. But he says something that makes about as much sense as that to you. You nod glumly.
And $2,000 (if you're lucky) later, you're on your way, reeling from a severe case of car-mechanic syndrome... You've been fooled by an "expert" into overpaying for a service that should be a lot simpler, and less expensive, than you've been led to believe.
And because you don't have the time, money, inclination, and/or desire to learn enough to not be ripped off, you'll continue to be bamboozled by the car mechanic... forever.
Overpaying to fix your car is bad enough. But lots of people waste their hard-earned money in a similar way – only with their money rather than with their car. They allow the financial-industrial complex to rip them off.
That's the vast web of interests that's eager to get their hands on your cash and "help" you invest it – from the mainstream financial media to private bankers and "financial advisers" to policymakers who let those guys have their way with your money. The ultimate purpose is to separate you from your money. An important part of that is to make finance and investing sound more complicated than it really is.
It's the car-mechanic syndrome, fine-tuned for finance and investing.
How the financial-industrial complex works: First they confuse you with needless jargon. Then, they make you anxious that if you don't listen to their recommendations, something catastrophic could happen. Then they overcharge you to fix the problem that they just manufactured in your brain – in the form of fees and expenses and loads and wraps and other fancy-sounding structures that the financial industry comes up with to pry your hard-earned dollars from your hand.
And the worst of it is that every dollar you spend on fees is one dollar less that's going to be compounded, year after year, to produce more wealth for later on... Wealth that could go toward your retirement or your kids' education or that condo in Orlando.
That's not to say that there's no role for others to help you with figuring out what to do with your money and how to make it grow. Even the best amateur mechanic can use the insight of a bona fide expert.
And the best source of insight is people who know what they're talking about, provide unbiased and honest insight, and who have no incentive to guide you toward any one investment or another – and who are interested only in helping you make better financial decisions.
And there may, in fact, be a role for a financial adviser or private banker in your financial life – if for no other reason than to listen to what they have to say. Many of them are smart, experienced people with real insight on investing. The problem is that they make money when they take some of yours.
So the decision to let someone else – whether it's a private banker or investment adviser or someone similar – be your "financial mechanic" is a big one. If you elect to go that route, here are three questions of him or her to ensure that you don't suffer from car-mechanic syndrome...
1. How do you value a financial asset?
This is a hugely broad question. It's like asking a religious person to prove the existence of a greater being. But the point is to see how a possible financial adviser responds – and, most importantly, whether you understand the response. If your potential financial adviser sounds like the car mechanic above, you should take your money elsewhere. If you don't understand him now, you're not going to understand him later... and if you don't understand him, you'll wind up paying dearly for your ignorance.
2. How many bear markets have you experienced in your investment career?
Would you take advice from a marriage counselor who has never been married? Or be the first patient of a just-out-of-school dentist? Or listen to a lawyer who has never practiced law? Of course not. For the same reason, you should think long and hard before letting someone who has never experienced the violence of different market environments manage your money. Stressful situations involving money – yours and especially others' – can bring emotions into play in a way that can be destructive to your personal wealth.
3. How are you paid?
Some investment advisers are paid – either directly or indirectly – on a commission basis. That means that they make money only if you buy or sell. But often, doing nothing is the best thing to do. If your financial adviser only makes money if your portfolio records a transaction, you'll wind up buying and selling a lot more than you should.
Instead, find a financial adviser who is paid based on your total assets, or a flat fee. That means s/he won't be incentivized to put you into vehicles that don't make sense for you (but which generate lots of fees for him), or to buy and sell a lot more than you should.
Bonus... beware fancy acronyms.
If your financial adviser ever recommends an asset that's described with some kind of silly acronym (like, for example, BCTTLIHIRSSN, which stands for Bermudan Callable Three Times Leveraged Inverse HIBOR in-arrears Resettable Step-up Snowball Note... yes, it was a real thing), run away, fast. No matter how good it sounds, you can bet that something incomprehensible is designed, first and foremost, to separate you from more of your money, faster, than anything that isn't described by some kind of new acronym.
Taking your car into the repair shop is much like investing – in that the more you know about it, the less money you'll likely spend. If you decide that you do need an investment mechanic, be sure you find one that isn't going to cost you more than he should.
July 21, 2022
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