Gather, do not scatter.
Over the years, investors have become convinced that proper investing means taking their money and spreading it out among various investment professionals. Over time, many investors accumulate, on average, four advisors and multiple accounts. From your 401(k), Roth IRA, Traditional IRA, brokerage and mutual fund accounts, to your 401(k), Traditional IRA, trust and savings accounts, a family can accumulate multiple accounts with various financial institutions.
This spread of assets leads to a false sense of “diversification” by “not putting all your eggs in one basket.” The problem is that this strategy really hurts most investors.
Many investors have unknowingly scattered their assets, resulting in no one person managing or fully understanding their situation, goals, or dreams. Without comprehensive planning, there really is no plan.
1. Misallocation of assets
Most investors have their assets spread out with various advisors and various financial firms. No individual adviser knows what the other is doing, resulting in an uncoordinated portfolio. An adviser from company A could be selling the same asset that an adviser from company B is buying. Unless there is a trainer going through the entire portfolio, then his money is not coordinated.
Your asset allocation should always reflect your current position in life, your current goals, future, feelings and family characteristics. When your hard-earned money is distributed among other advisors and institutions, only you can properly manage your portfolio. Many people are not trained to monitor this correctly and consistently. Unfortunately, the general plan suffers.
2. Inadequate Correlation Within Investments, Managers and Funds
Without saying it, each investment must be excellent on its own. The investment, manager, or mutual fund should have a strong track record (I like a ten-year track record). You may be able to select quality investments. That’s not the problem. Where the break occurs is in knowing how these investments are interrelated. This is almost impossible to track when one advisor is doing one thing and another advisor is doing the opposite.
Let’s think of a recipe analogy. You may have the best ingredients to make your favorite dish. You can even have quality chefs at your beck and call, ready to prepare this dish for you. If you put all these chefs in the same kitchen, but don’t let them know what the other one is doing, you’re in for a culinary disaster. You can see that the probability that your dish will turn out correctly is very low, no matter how good the ingredients are. The same goes for your investment portfolio.
3. Lack of monitoring of the consolidated portfolio
You know that life is not static. Life is constantly changing. Whether it’s your job, your kids, the economy, world events, new laws, unplanned spending (and the list goes on and on), your world is constantly in flux. Your entire portfolio should also be dynamic. When market forces move, the properly managed portfolio needs to move with them. I’m not talking about day trading, but rebalancing when and where appropriate. In addition, your goals, future, feelings and family characteristics are also changing. Every day is one day closer to your goals, or not.
Having your assets spread out makes it nearly impossible to adequately monitor your portfolio based on your changing life. With the technology and tools available, along with the new “open architecture” available at full-service financial institutions, you may be better off hiring an advisor to help you monitor your portfolio. This trusted adviser will coordinate all your “eggs” and not put them in the same “basket”. He/she can manage your diversified portfolio to meet your goals, future, feelings, and family characteristics and ensure that your entire portfolio works in unison to make your dreams come true.
In conclusion, years ago, many firms limited themselves to the solutions that they could provide individually to the client. Many had their own funds or property investments, which may or may not have been in your best interest. Full-service companies today have an “open architecture” and can go to market and provide you with whatever solution is appropriate. For your consideration, just hire an advisor who can go anywhere in the market without limitations!
