• Matt Morizio

A year in review - observations about the investing industry from a former outsider


I joined Beck Bode a little over a year ago as an outsider to the investment industry. I had my skepticisms and predispositions about the financial world like the rest of us. Now that I’m “one of them,” I thought I’d share my observations after my first year in the industry.

A financial plan really helps. I grossly underestimated the impact a financial plan can have on achieving my goals. I’ve always been one to set personal and professional goals and then design a roadmap to achieve them. But when it came to my finances, I had no roadmap. I knew A, where I was now, and B, where I wanted to be, but I had no idea how to financially make it happen. My financial plan fills in the gap between A and B, and it gives me actionable steps I can take right now to start using money, investments, debt, etc as tools that help me achieve my goals.

There is a massive disparity between entrepreneurial risk and investment risk. I’ve talked with countless entrepreneurs who emptied their 401k’s when they started their business. From a textbook-investment perspective, that’s a terrible decision. You’re hit with a 10% penalty for tapping into your 401k before you are 59.5, you have to pay taxes on that money, and now you have no money left when you retire.

But I LOVE entrepreneurs who do this.

Why? Because they, beyond a shadow of a doubt, believe in themselves. Like elite athletes, they bet on themselves 10 out of 10 times, despite the naysayers and statistics being stacked heavily against them. I love that mentality.

But I’ve noticed most entrepreneurs who do this, when they do invest, invest very conservatively.

Think about that - you have someone who is willing to empty their life savings to bet on themselves, even though statistically their business has an 80% chance of failing in the FIRST YEAR of operation, yet they are weary of investing in stocks, even though the S&P 500 has NEVER lost money over a 30 year time period.

Why?

In my opinion, most entrepreneurs don’t fully believe in their investment strategy. On top of that, most entrepreneurs want to be in control. Combine a fuzzy investment strategy (we’ll invest in some funds and reassess in 12 months) with lack of control, and you’ll get an entrepreneur far more willing to bet on their business than the stock market.

Which leads me to my next point…

The industry is full of robots. I’m not talking actual robots, either. I’m talking robots disguised as humans. I was weary about this before joining Beck Bode and becoming a financial advisor - I wondered, “what investment decisions to advisors actually make?” Unfortunately, my time in the investing world only reinforced my apprehensions. The answer is: most don’t make any.

The majority of investment strategies can be summed up like this: “It’s what the computer recommended.”

Nobody will actually tell you that’s how they came to their investment decisions, but trust me, that’s how it happens A LOT. Very few firms make decisions themselves (I’m thankful we are among the minority). Instead, they enter a crap load of information into a software, and out comes an asset allocation with the recommended investments.

A lot of people feel like they are supposed to know more than they do. And that’s unfortunate. People’s insecurities prohibit them from asking questions about their investments or financial plans, and they end up taking recommendations that aren’t optimal. At the end of the day, they are the ones getting hurt. As I said in this article, the most successful people in the world identify their weaknesses and seek help in those areas. Have a slice of humble pie and understand that it’s OK and expected that you aren’t a finance expert.

When insurance becomes more than insurance, it gets confusing. Term Life, Whole Life, Universal Life, Variable Life - which is best? All offer a payout if you die, but many are coupled with some sort of investment option, cash balance, and/or annuity. My advice, buy the product for what it is designed to be.

I don’t expect my YETI tumbler (love that thing btw) to be a good soup bowl, although I guess it could be, and I don’t expect my life insurance to be an investment product, although I guess it could be. My YETI is much better suited for drinking liquids from, and my life insurance is much better suited as life insurance.

Wall Street snake oil is real. According to studies cited in Tony Robbins’ book, Unshakeable, only 1% of about 315,000 financial advisors act is a fiduciary 100% of the time, aka they are legally required to place your needs ahead of their own with every decision, every time. That means 99% can place their needs ahead of yours, WITH YOUR MONEY. Yes, they need to make sure you’re invested according to your risk tolerance, but that investment doesn’t have to be the best investment for you so long as it meets your risk criteria.

That’s like going to the hardware store to buy a new lawnmower and being sold a weed-whacker. Technically, the weed-whacker can get the job done, but is it really the best tool for the job?

Di-worse-ification is everywhere. As I pointed out earlier, very few advisors have a clear cut investment strategy. So, the general consensus in the investing community is, “more is more.” Most portfolios I see are overly diversified. In other words, most people own way too many investments. Even if some of the stuff they own grows, they also own a whole lot of other mediocre stuff that snuffs the gains of the good investments.

Wealth is built in concentration. Look at some of the richest people in the world. You’ll find yourself saying things like, “He made his money in real estate,” or “She is big in the oil industry,” or “He sold his company and made a fortune.” Sure, most of us don’t fall into these categories, but there’s a common theme we need to pay attention to - they made most of their money in ONE investment. I don’t recommend only investing in one thing, but there’s also no need to own 600+ stocks.

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Investment advice offered through Beck Bode, LLC, a fee-only Registered Investment Advisor in the Greater Boston area.