I did a lot of cooking as a child. It wasn’t so much that I liked cooking but more that I just liked to not be hungry, and with 10 brothers and sisters around, and being a growing teenage boy, I was always hungry. As a side note, I have raised enough teenage boys myself now to realize that hunger is not dependent on their environment but rather is a constant state of being. Perhaps that is what the teenage Rene’ Descartes meant when he famously said, “I am, therefore I am hungry,” or something like that.
In my efforts to satisfy my constant need for nourishment, I learned to cook. On one occasion I was helping my mom with dinner as she was preparing a rice dish. Wanting to make sure things were progressing I removed the lid from the rice and began stirring it. She quickly corrected me, saying that with some foods, like rice, you are not supposed to touch it once it is on the stove. “Sometimes,” she said, “being a good cook means leaving things alone.”
I was at a training seminar for financial advisors and the speaker was talking about what it means to actively manage an investment account. He talked about doing frequent and appropriate research. He discussed client involvement and reporting. He taught portfolio allocation to maintain risk levels at proper suitability standards. And then he explained that after all the work, one of the most difficult tasks for an advisor would be knowing when to leave things alone. “Active management” he said, “often means the best thing to do is nothing.”
There is a temptation for financial advisors to show they are doing their job by moving things around. There is also a temptation for clients to feel they are getting their money’s worth if they see active buying and selling in their managed accounts. When nothing happens for a while, clients may feel the advisor has stopped managing the account. Much like cooking rice, just because my mom stopped touching it didn’t mean she had left the kitchen.
I have seen clients change advisors only to have the new advisor recommend a full liquidation of all positions and start over. Not only does this risk tax consequences, but often the goals of a client can be met just as well with many of the existing positions. Different is not always better.
My mom taught me that cooking required constant attention, but not always constant action. Sometimes it required patience to allow things to come together. Lessons learned in my childhood kitchen can be applied to the investing markets. Change is not always good. As an investor, do not assume that just because your advisor has made the decision to stay the course, that they are not doing what you paid them to do. In fact, they may actually be doing exactly what you paid them to do. Sometimes the best thing, is to do nothing.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 375 E Riverside Dr, St. George, UT 84790
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