Why Investors Often Have Unrealistic Expectations
As an investor, what do you expect when you hire an independent financial advisor? Do you expect them to consistently make every year for all your investments? The obvious answer is “no”, yet many investors – both beginners and seasoned investors – react strongly to market volatility. This often stems from unrealistic expectations.
Many investors wrongly believe that hiring an independent financial advisor to manage their investment, guarantees consistent, even high, returns. Such expectations are not only unrealistic but can also set you up for disappointment and poor decision-making.
The Role of Mindset in Your Investment Journey
Having the right mindset is crucial in investing because it helps align your investment return expectations with market realities. When you hire a professional independent financial advisor, they will guide you through your goals and the strategies to achieve them. However, even with expert guidance, there are no guarantee of smooth or consistent investment performance year after year.
The Limits of Professional Expertise
As independent financial advisors, we possess the expertise and experience to monitor and navigate the market; however, we do not have control over its fluctuations. What we do provide is the strategic insights to guide you through market ups and downs, ensuring that your wealth continues to grow in alignment with your long-term financial goals.
Case Study – 3 Lessons from Sarah’s Experience
Investing inherently involves risk. While volatility can drive wealth growth, it can also lead have to losses, depending on how you respond, the actions you take, during market downturns.
A realistic investing approach requires understanding and accepting both the potential for gains and losses, while cultivating a strategy that maximises returns and minimises potential losses.
Let’s look into a real-life client case that one of Whitman’s independent advisors, Kenny, has dealt with.
Sarah has been a client of Kenny’s for five years and is generally happy with Kenny’s holistic advisory service. However, every time her investment value dips due to market cycles, things take a turn for the worse. She becomes very disgruntled and goes on a tirade questioning
Kenny’s recommended strategies. She gets very disappointed and emotional when her investment value drops.
Investors like Sarah have unrealistically high expectations when it comes to investing. They believe that hiring an independent financial advisor should mean zero losses and constant upward growth in their portfolio.
However, this is unrealistic, as the market naturally goes up and down, and no one can perfectly predict its timing.
The Risks of Chasing Guaranteed Returns
In her state of dissatisfaction, Sarah found herself being approached by a friend to invest in a forex trading scheme.
Naturally, Kenny was against the idea. He proceeded to explain why this investment was risky, highlighting that the investment was not regulated by the Securities Commission of Malaysia and was on the investor alert list for quite some time.
Despite multiple discussions with her, Sarah chose to go ahead with the investment but agreed to limit her risk exposure by investing a smaller amount than originally planned.
Fast forward five months later, the investment ran into issues, and she was unable to recover her capital. Sarah has since realised that investing is more complex than it appears.
Without thorough research and careful consideration, investments can easily go awry. She now understands and appreciates the value of the meticulous steps and research that Kenny, her financial advisor, undertook to guide her. This setback has brought her back to her senses and is gradually restoring her trust in the value of independent financial advice.
Key Takeaway – Why Due Diligence Matters
- Always verify if an investment is regulated by the Securities Commission Malaysia.
- Be cautious of promises of “consistent guaranteed high returns.”
- Seek professional advice from an Independent Financial Advisor before committing your funds to avoid costly mistakes and seize the right opportunities
Managing Expectations – 3 Ways to Stay Grounded
Managing your investing expectations is crucial because it helps you align your return targets with market realities. Many investors fall prey to scams due to unrealistic expectations – they are attracted to what they want to hear i.e., promises of consistent high return that sound too good to be true.
Key takeaway: 3 Practical Tips to Manage Your Expectations
- Accept that returns will fluctuate year by year.
- Use historical performance as a guide, not a guarantee.
- Regularly discuss expectations with your financial advisor.
The Real Role of an Independent Financial Advisor
An independent financial advisor’s role is not to ensure that there are no dips in the portfolio or temporary setbacks, but to ensure the right strategies are in place and executed to grow your wealth, whether the market is doing well or poorly. We work with our clients to help them overcome their fear, make sound investing decisions, and take the right actions.
It is not unusual for clients to feel uncertain and shaky at the start of the professional relationship. This happens in every new client-advisor relationship. But through maintaining professionalism and consistency, trust can grow steadily over time and facilitate a smooth working relationship.
Why Good Advisors Sometimes Say No
It is also important to remember that good financial advisors are not always going to say yes to you.
For example, when the market is down and you are tempted to sell your investments to cut losses, a good independent financial advisor may advise against it. This is because they have confidence in the quality of their recommended investments and recognise the opportunity to buy more at a lower price, reducing your average cost and allowing your investments to bounce back faster and stronger when the market recovers.
The Hidden Value of Professional Guidance
A good advisor is not just there to celebrate your wins, but is especially valuable when times get tough. They understand the impact of emotions on financial decisions and can provide empathetic support. Recognising how hard clients have worked hard for their money, good advisors avoid judgment and help guide them through emotional decision-making and moments of indecision.
Final Thoughts – Why a Sound Strategy Beats a Crystal Ball
The bottom line is that the value of an independent financial advisor is often misunderstood and undervalued. In the example above, we see Sarah panic and get disappointed when her investments are not performing well. In reality, this is the most vulnerable time for people to search for better return investments and fall victim to scam products, which leads to even more losses.
It is here that financial advisors have one of their highest values – preventing clients from being overridden by their emotions and ensuring the right strategies are executed during this critical period.
Independent financial advisors may not have a crystal ball to always pick the right investments at the right time. However, they can help implement a sound investment strategy that minimises risks, avoids unnecessary mistakes, and seizes market opportunities, leading to decent investment returns and ultimately financial freedom. After all, there is no shortcut to investing.
This article is based on a published editorial. Read the full article: Managing Your Expectations for Independent Investment Advice