There are many fields where it is accepted that, in order to succeed, one must have professional aid. Take golf for example – no pro player is going to go without a caddie. To do so would be to add to their burden and distract them from what’s important in the game.
Caddies hold an extremely important role for professional golfers, aside from the obvious carrying of the clubs. Beyond the physical aspects of their job (walking the course before the game to identify the best plays, checking weather patterns, slope, yardages, wind direction...) they are also there for moral and mental support, and confidence. In times of indecision, the caddie can advise the best course of action – which club to use, for example. If the player needs encouragement to ‘trust the swing’ or is in a bit of a funk, the caddie can help keep their emotions on an even keel.
Famed American pro golfer Jack Nicklaus once said that the most important six inches in golf are those that lie between your ears – meaning your brain. A good caddie will keep a player’s mind sharp and their emotions in check.[i]
Financial advice is much the same. Professionals with specialised knowledge and skills can make things significantly easier than trying to go it alone.
Having a support team is something we accept as par for course (pun intended) in sports. Yet when it comes to managing our financial matters, many of us will try to go it alone and depend on advice from friends or trends – placing a handicap on themselves before they even get into the game.
Financial literacy is not something commonly taught; even if it was, information alone does not lead to transformation. Most decisions around money are emotional and knowing in-depth information around interest rates won’t sway that fact. Humans have a tendency to value things that make us feel good, and make financial decisions based around these – personal connection, new experiences, or fitting in as members of our communities.[ii]
This is where an adviser comes in as the proverbial caddie.
Managing emotions is a big part of your financial journey, as it’s entirely too easy to fall into following headlines and speculating where our money will perform best. The problem lies in the fact that while we as investors may be susceptible to emotions... the market is not.
Similar to the golfer trying to take another swing after a bad shot, it’s easy to get stuck in a negative emotional space where money matters can feel overwhelming. Particularly if you find yourself in the cycle of chasing market highs – spending money on ‘successful’ stocks and selling them off once they dip is a sure way to lock in losses.
Inflation is running rampant at the moment, both here and overseas. We’re currently in the most difficult environment since the 1994 ‘Great Bond Massacre’, where a rise in rates and a relatively quick spread of bond market volatility internationally ultimately resulted in $1.5 trillion of lost market value globally.[iii]
It can be tempting, especially in the current climate where so much is beyond our control, to try and create a sense of autonomy by picking stocks. This is called control bias, where as humans we tend to believe we can control or influence certain outcomes when, in fact, we can’t.
You can’t predict the market, no matter how closely you follow it. This understanding is fundamental to success. A good fiduciary knows this and can help you plan around it, no matter which way the wind is going once you’re out on the course.
The other thing to consider is that you (and your family, if applicable) have your own unique situation and goals. Everyone does. So when it comes to figuring out the best shots to take, not everyone will need the same approach. Someone in their early 30s planning for retirement in 30+ years is going to be able to use a heftier club to drive the ball over a longer distance, whereas someone looking to retire in the next few years may already be on the green and could gently putt along – without risking their progress on a big swing.
If you’re seeking financial advice, here are some key items to look for:
1.) Independent. This means a commitment to best fiduciary practices, and to providing unbiased and objective advice free of conflicts.
2.) Fee only. Advisory firms with fee-only models don’t take commission from the providers of their financial products, which means they have no kickbacks to incentivise you using particular products, nor do they take a margin on transactions. This is where the term ‘fiduciary’ comes in; Fiduciaries stand in a special relationship of trust and can’t collect any commissions from the sale of investment products, so their providers will be sourced for your benefit rather than their own.
3.) External validation. CEFEX certification is the nearest thing we have to a global stamp of approval for trustworthy investment professionals. CEFEX accredited firms voluntarily undergo annual audits by independent analysts to help foster a culture of continuous improvement. What that means, essentially, is a firm with CEFEX accreditation has chosen to take on a continual commitment to best practice – one which external parties will be making sure they adhere to.
There’s a lot of merit in bringing trusted professionals into your relationship with and management of your finances. With rate hikes occurring worldwide and volatility beyond Russian restrictions or covid delays, expert advice is more important now than ever. The tools and expertise provided can help reduce stress and let you sleep easier at night.
As in golf, you’re ultimately the one taking the swing... but going 18 holes can seem a lot less intimidating when you have someone helping with your focus, carrying the clubs and traversing the terrain.
· Nick Stewart is a Financial Adviser and CEO at Stewart Group, a Hawkes Bay and Wellington-based CEFEX certified financial planning and advisory firm.
· The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
[i] https://www.sportingnews.com/us/more/news/why-do-professional-golfers-need-professional-caddies/snpge9gseknez2wt775c78ee
[ii] https://www.vox.com/23069449/emotional-spending-personal-finance
[iii] https://www.reuters.com/markets/us/feds-bullard-i-hope-us-economy-repeats-outcome-1994s-soft-landing-2022-06-20/
