There is a very strong tendency in people to simplify information. That’s just the way our brains work and to some extent it is necessary because of the overwhelming amount of input we receive constantly from our surroundings.
Simplification is also useful because, for many details of our lives, we don’t want to spend the time necessary to dig deeper and deeper in to a subject. Simplification can work against us when we attempt to solve a complex problem with a simple answer.
I see this over and over as people express a very simple under-informed opinion to problems such as; the education system, eradication of poverty, immigration, the healthcare system, and so on. There are no simple solutions to these problems. The problems are exceptionally complex with many moving pieces and to attempt to place a glossy solution on a complex problem is to do a disservice to the problem and all of those affected by it.
Investing is an area in which I have found that people tend to “over-simplify” to an extreme. Granted, investments can be very complex in both how they work and how they fit in your particular plan.
In over 45 years in the financial services business, I’ve found that most investors make their decisions based on trusting their advisor or on a gut feeling about the investment. Both of those methods can be a recipe for disaster. Fortunately, most of the time, trusting your advisor works out.
In spite of press coverage to the contrary, there are very few Bernie Madoffs in the investing business, there are more incompetents than crooks. If you are unfortunate enough to encounter one then it can be a disaster for you personally, but those are rare.
Investing based on your gut feelings even has a chance of working out. In an investment where the decision was made primarily on the fact that you “feel good” about it there are really only three possible outcomes: it doesn’t work out at all, or it kind of works out, or it’s a home run. While there are varying degrees of possibilities in all three outcomes, the reality is that the possibility of a disaster is only one of three options. In the other two possible outcomes you will feel at least OK about what you have done, but the outcomes really have nothing to do with your “gut feeling”, it’s just how the odds work with limited possibilities.
Your money and your financial future are too important to rely on a simplified solution or to invest by your gut feeling. We want to assist you in making the most educated, knowledgeable and appropriate choices when it comes to managing your money. Give us a call at 972-874-8757 for a free consultation, you’ll have a “good feeling” about it.