If you haven't spoken to a financial professional, I suggest you speak to one. You will likely get great insights into how you can better invest your hard-earned money. Further, the financial professional might uncover some financial blindspots you had no idea you had.
I've been a DIY investor since 1995 when I first opened an Ameritrade account with my dad's help. The year before, he had sat me down at the breakfast table and explained what the various ticker symbols meant at the back of the local newspaper. I was fascinated.
I started with $500 in my online brokerage account, mostly money I earned working at McDonald's for $4 an hour. Then, like a coke fiend chasing his next hit, I dove into day trading. Within six months, I lost most of my money.
All those hours standing in front of a hot stove making Egg McMuffins and Big Macs were for nothing! I wish I could have spoken to a financial professional to give me some guidance. My dad was good at telling me about the basics of stocks. But he didn't explain to me how to invest or the purpose of investing.
As a father now, I also realize kids often listen to an instructor more than their parents. I can't tell you how many times I brushed off my wife's advice, only to agree later after listening to an expert share their same thoughts!
The Rise of the Stock Market Addict
You'd think I would have learned my lesson in high school and college about the dangers of day trading. But no, my stock market addiction only worsened after joining the International Equities desk at Goldman Sachs. But I’m not sure it was entirely my fault.
According to addiction experts, the inputs that push people toward addiction are: volume, accessibility, novelty, and intensity. Once I graduated from college, I was hit with all four all at once!
I worked on the 49th floor of One New York Plaza, NYC. While sitting high above, phones rang non-stop as sales traders took orders from institutional clients. The buzz on the trading floor would start around 6:45 am and crescendo into a frenzy by the close at 4 pm.
If you're addicted to donuts, living next to a donut shop will be the death of your diet. But I wasn't just living next to the shop—I was on the assembly line, glazing the dough all day with maple frosting! And every day there were multiple flavors to try.
Unfortunately, I became hooked on stock trading once again. This habit ultimately turned into a career-limiting move at my next job at Credit Suisse when I joined in 2001.
You Are Not Smarter Than the Market—Stop Trading
For the love of God, please do not day trade stocks. You might get lucky sometimes, but without proper risk management and emotional control, you will eventually lose your shirt. There's a reason the average retail investor underperforms the S&P 500 and other asset classes over time.
I remember one year, I day traded over $10 million in stock volume. For all my effort, I might have made $12,000. The head of the International Equities department flew over to San Francisco from NYC and sat me down. He basically asked, “What the hell are you doing? Focus on your job.”
That was likely the beginning of the end of my career. To get promoted to Managing Director, I needed buy-in from a committee of MDs, including the head of International Equities.
After playing hardball with management for a big raise in 2011—and getting it because I was being lured away by an upstart competitor—I got zeroed in 2012. That’s when I decided to negotiate a severance package and leave finance behind for good.
A Financial Professional Helped Cure My Addiction To Trading
In early 2013, when Empower was still called Personal Capital, I had an in-person meeting with one of their financial professionals at their San Francisco office. As a Registered Investment Advisor (RIA), they were offering a free financial consultation at the time, much like they are today. So I figured I'd take advantage of it. I was already using their free financial tools and planned to consult with them part time, which I did for the next two years.
Given my significant life change of being a 35-year-old unemployed man, I wanted a second opinion on my portfolio. I was still scarred by the global financial crisis of 2008-2009, which had cut my net worth by 35% – 40% in six short months.
Since 1996, I had developed a dangerous mindset, thinking I was smarter than the markets. I went to college, landed a hard-to-get job, and made a 50X return on a Chinese internet stock in 2000 called VCSY. But I was also worried about confusing brains with a bull market since I had also lost tons of money investing as well.
Without a steady paycheck to make up for any future stock losses, I finally had to seek help. This is where Patrick, my financial advisor, came in.
Received An Intervention From My Financial Professional
During our consultation, he reminded me of the benefits of long-term investing. When he discussed tax-loss harvesting, he pointed out the inefficiencies of paying short-term capital gains taxes. And perhaps most beneficial was showing a pro forma chart, highlighting what I could potentially have in my investments in the future if I changed my asset allocation.
I knew of all this given my background in finance, but it took someone to tell it to my face while I was going through a significant period of uncertainty to make a change.
A Blind Spot My Financial Professional Showed Me
Below is a chart of my asset allocation in one of three portfolios back in 2013. It had a little over $500,000 in it. What stands out to you?
You're correct about the 52% allocation to cash (~$255,000) and 100% allocation to tech stocks! Looking back, I initially couldn't believe I had such a large amount of cash. However, it made sense at the time because I no longer had a job. 95% of the cash was in CDs yielding an average of about 4.5%, so it wasn't terrible. But still.
During the height of the 2009 financial meltdown, I remember buying 5-year and 7-year CDs because I was scared. I feared not only losing all my money in stocks and real estate but also losing my job.
The only two good things I did during the global financial crisis were:
- Not selling existing positions
- Starting Financial Samurai in July 2009
The fear of being broke and unemployed finally pushed me to launch this site, which I had first conceived in 2006 after graduating from business school part time. Unfortunately, I don't remember buying a significant amount of stocks during the global financial crisis.
My Financial Professional Reminded Me I Was Still A Young Man
During my second session with an Empower financial professional, Patrick suggested an asset allocation tailored to my age (35), risk tolerance, and goals. See below where my cash allocation would decline from 52% to 1%.
Initially, I resisted this recommendation because I was focused on living a minimalist retirement on my grandfather's farm in Waianae, Oahu. In my mind, I needed to invest conservatively, just as any traditional 65-year-old retiree would, despite the 30 year age difference. I was happy with my net worth and ~$80,000 a year in passive income at the time.
I didn't retire from finance to start a career as an internet entrepreneur. All I wanted was to kick back and continue writing on Financial Samurai and potentially write more ebooks after How to Engineer Your Layoff was released. It was enjoyable, connecting with other people online about personal finance issues. If I could make $1,000 a month in supplemental retirement income online to pay for mangoes, boogie boards, and tennis equipment, I'd be thrilled.
In other words, I felt I had to be super conservative with my investments because I had no other options. My active income was squashed, as so was my energy to return to work. I just needed to preserve as much capital as possible to never experience the hellish conditions of 2009 again.
Finding The Courage To Take More Risk
In the financial professional's mind, I was still a young man with plenty of energy and many financial opportunities ahead. This concept of FIRE (Financial Independence Retire Early) in 2013 was still a fringe concept, even though I had been writing about it since 2009. Therefore, I could afford to take on more risk—certainly more than having 52% of my portfolio in cash.
While I didn't follow his recommended optimal allocation exactly, the consultation did motivate me to invest all of my idle cash within a year.
Invested $150,000 Of My $255,000 In Cash In Stocks In 2013
The S&P 500 in mid-2013 was trading around 1,600. Given the S&P 500 is at about 5,800 today, investing ~$150,000 in the S&P 500 and various tech stocks has proven to be a good move. $150,000 in the S&P 500 has grown to over $600,000 today.
Invested The Remaining $100,000 + Expiring CD Into Real Estate In 2014
The following year, I used my remaining $100,000 cash plus 100% of an expired CD for a down payment on a fixer-upper in Golden Gate Heights, San Francisco. The house cost $1.24 million and had panoramic ocean views on a double lot.
I put $248,000 down, then I took out a $992,000 mortgage. At the time, I recognized the real estate market had begun creeping up since 2012 and I wanted more exposure. I couldn't believe ocean view homes were selling at such steep discounts. But I still remember feeling scared making the offer and wanting to back out last minute.
Taking on a new $992,000 mortgage without a day job and with a wife eager to retire early was far from conservative! However, without W2 income, qualifying for a mortgage would have been impossible. So we decided to take an investment leap of faith before my wife retired in 2015. To improve cash flow, we rented out our previous house, which was 70% more expensive.
At the time, I had been wanting to return to Hawaii and see the ocean for two years. Buying this house was my hybrid solution. I'd build a deck off the main bedroom and enjoy Hawaii in San Francisco.
A Neighbor Just Sold At A Healthy Price
It's been 10 years since the home was purchased. Unfortunately, the remaining mortgage balance is still $408,585. But ever since refinancing it to a 7/1 ARM in 2019, I haven't been motivated to pay down a 2.62% mortgage rate.
Recently, a neighbor's property with inferior views, no deck, no hot tub, no terraced backyard, 240 square feet less living space, a 1,400 square foot smaller lot, and an outdated remodel sold for $2.25 million.
This indicates that the $248,000 down payment has grown to over $1,250,000 in equity, excluding the $583,435 paid down on the mortgage. Including the mortgage paydown, the equity has increased from $248,000 to $1,840,000 before fees and transfer taxes if I were to sell.
Oh, but I forgot the ~$120,000 I spent remodeling the fixer-upper between 2014 and 2015. So, the equity return is less. But still not bad at all.
Just like with stocks, buying and holding real estate for the long-term is generally the best strategy. But with real estate, leverage can really help boost returns along with methodically paying down debt.
Who Should Speak To A Financial Professional
A financial professional didn’t directly turn my $255,000 in cash from 2013 and $150,000 from an expired CD in 2014 into $1,850,000. However, he did help give me the confidence to start investing more aggressively. Back in 2013, I was still in a defensive mindset, even though I was only 35 and had my whole life ahead of me.
If I hadn’t spoken to a financial professional, I likely would have deployed my cash much more conservatively—or perhaps not invested it at all. In mid-2015, my wife had also left her job, which could have made me even more hesitant to take investment risks.
Luck certainly plays a role in investment returns, but so does having proper guidance and the courage to take risk. One minor change can result in a large financial difference over 10 years. Today, I reviewed my investment risk profile again thanks to this post and discovered I’m way more aggressive than I thought I was.
If any of these scenarios apply to you, speaking to a financial professional is a wise decision. Financial professionals review portfolios and speak to people like you all the time. It's good to get some insights into what other people in your similar situation are doing with their money.
Consider speaking to a financial professional if you're experiencing the following:
- Major Life Events: Significant changes like marriage, having children, buying a home, or receiving an inheritance are good times to consult a financial professional. They can help you adjust your financial plan to accommodate new responsibilities or opportunities.
- Approaching Retirement: As you near retirement, it's crucial to ensure that your savings and investments will support your desired lifestyle. A financial professional can help you transition from saving to generating income. They can also help you decide on the most tax-efficient asset sale strategy.
- Complex Financial Situations: If you have multiple income streams, own a business, or have substantial assets, a financial professional can help you navigate complex financial decisions. This includes tax strategies, estate planning, and risk management.
- Lacking Time or Expertise: If you don't have the time or knowledge to manage your finances effectively, an advisor can take on this responsibility, allowing you to focus on other aspects of your life.
- Facing Financial Challenges: If you're dealing with financial uncertainty or want to optimize your financial health, a financial professional can provide guidance and strategies to improve your situation.
- Planning for the Future: Whether it's for retirement, education expenses, or long-term care, a financial advisor can help you create and maintain a plan to achieve your goals. The continuity of a plan is important as the financial professional gets to know more about you over time.
- Desire for a Second Opinion: Even if you’re confident in your financial plan, getting a second opinion from a professional can provide peace of mind or highlight areas for improvement.
Questions To Ask A Financial Professional
If you decide to speak to a financial professional, here are some questions I'd ask:
- How are other investors with a similar profile to mine currently investing?
- What are the biggest concerns for investors with my profile at the moment?
- What is the average cash balance for investors like me?
- How do you anticipate the investing landscape might change under a Harris or Trump presidency?
- How do you expect your recommended asset allocation for me to perform relative to the S&P 500?
- What are your thoughts on the benefits of direct indexing and tax-loss harvesting?
- How should real estate factor into my portfolio?
- How large could my investments grow over a 5, 10, 15, and 20-year period?
- Do you think it's better to invest my cash in one lump sum or dollar-cost average over time?
- What is the value proposition of your product?
Don't expect your financial professional to know the answers to all your questions. However, based on their responses, you should be able to gauge their expertise and the quality of their product offerings.
Make Sure You Have A Financial Plan
My biggest fear today for investors is overconfidence. With the stock market at all-time highs, it’s easy to confuse brains with a bull market once again. Make sure you are investing in a risk-appropriate manner. Once you’ve made a lot of money, you must preserve it.
Ten years will fly by before you know it. So it's crucial to develop a financial plan and stick to it. By doing so, you'll likely come out way ahead compared to those who don’t.
Use The Best Retirement Planner: Boldin
If you’re serious about building wealth and retiring comfortably, sign up for Boldin’s powerful retirement planning tools. They offer a free version and a PlannerPlus version for just $120/year—far more affordable than hiring a financial professional.
Boldin was designed specifically for retirement planning, offering a holistic approach to financial management. Beyond just focusing on your stock and bond portfolio, Boldin integrates real estate investments, guides you through Roth conversions for tax minimization, and addresses many other real-life financial scenarios we all face.
If you are a DIY investor and planner, there's no more powerful retirement planning tool to help you finish rich than Boldin today.
Diversify Your Retirement Investments
Stocks and bonds are classic staples for retirement investing. However, I also suggest diversifying into real estate—an investment that combines the income stability of bonds with greater upside potential.
Consider Fundrise, a platform that allows you to 100% passively invest in residential and industrial real estate. With over $3 billion in private real estate assets under management, Fundrise focuses on properties in the Sunbelt region, where valuations are lower, and yields tend to be higher. As the Federal Reserve embarks on a multi-year interest rate cut cycle, real estate demand is poised to grow in the coming years.
I’ve personally invested over $300,000 with Fundrise, and they’ve been a trusted partner and long-time sponsor of Financial Samurai. With a $10 investment minimum, diversifying your portfolio has never been easier.
To increase your chances of achieving financial independence, join 60,000+ readers and subscribe to my free Financial Samurai newsletter here. How Speaking To A Financial Professional Saved Me From Myself is a Financial Samurai original post. All rights reserved.
the biggest take away from this should be having a financial plan, we’d trade all day, earn all day but in the end it won’t feel much since we never tied it to something that’s how we burn out and lead to eventual bad decisions, quite often we’re lasered in to focus on growing our portfolio but we neglect the overall picture and this is where an “outsider” like an advisor shows their true value to help you see it from another angle
it’s as simple as you wanting to lose weight versus you wanting to lose 10lbs, they’re both about losing weight but the latter will keep you accountable and generate a higher potential of success in losing weight
this is great insight as we often think someone like Sam’s caliber is “too smart” to need any advisory in finance but we’re all human at the end of the day so I will definitely stash this in my toolbox for my clients who are seasoned veterans like Sam
Yes indeed. It helps to have outside perspective because we all have blind spots. In addition, our life situations change all the time. It’s good to have some guidance when those big changes occur.
There is coaching for everything, including college admissions, weight training, sports lessons, music lessons, and so forth. Why not have some coaching or advice for your money as well? It’s a no-brainer.
Thank you for this post, Sam…and the prompt to talk with an Empower advisor. I have used Empower for years but didn’t really consider advisory services. However, I began a long-desired sabbatical in July and have enjoyed it so much that I’d like to see how I can extend it longer – and perhaps to see how I may even adjust my working life to have more ease. Thanks for the inspiration – I’m really looking forward to speaking with the FA soon. And extra bonus if I can sneak in the sessions by end of the month to benefit from your generous affiliate bonus!
How long has your sabbatical been? Any lessons for those of us considering one?
great post! i would say be extremely careful buying individual stocks. the averages will come back over time but when we get those major corrections some stocks never come back. look at TSLA was 400 in 2022, now is half that and SPY and QQQ at new highs. Novice investors make the mistake of thinking individual stocks will always eventually come back. averages yes, individual stocks no.
Good ol Tesla. I’ve owned the stock since 2018, and sold 75% of my shares in mid 2023 to buy my house. Frankly, that was the only good equity sale is pretty much everything else has continued to go up.
But I actually bought more Tesla recently after it’s Robo taxi and robot event where the stock tanked 80% or so. I think Tesla is going to win the war for self driving taxis in the future. But the stock will certainly be one of the most volatile overtime.
Absolutely my biggest winners over the past 29 years of investing I’ve been individual stocks. But so have been my biggest losers. I like to invest between 20 to 40% of my public equity portfolio and individual stocks. I can’t help it because I came from that world of active management.
You don’t count since your experience makes you more wise and not working a regular job gives you time to research and monitor :). If you have that combination of time and smarts, then yes, individual stocks can work. I just remember cutting edge companies like SQ, TWLO, ZM, LMND – all real companies that were in real transformational business and now 70-80% below where they were 3 years ago. YOu missed a 40% rise in SPY during that time. They will likely never reach old highs or by the time they do, SPY will have again doubled. I think alot of the AI stocks could be seeing that. The SMCIs will keep growing but the stock may continue to struggle as it gets cut in half again because of competition.. and margin shrinkage. NVDA maybe immune but I doubt it.
Another reason I like SPY/QQQ is it prunes the losers for you. They may be passive ETFs, but they actively remove the underperforming companies and add new good established ones. That is a big reason why they always go up over time. They are actively managed, just not flipping constantly. For individual investors it is hard to cut bait and admit you made a bad investment until you are down 80%.
Useful post, Sam. What kind of fees do you think are appropriate for financial advisers, particularly if they provide access to private equity?
Under 1%. The lower the better obviously. But if the financial firm can provide access to some of the top-tier private equity or venture capital funds, the fees are worth it.
For example, some of the top venture capital funds charge a 3% asset management fee and 30% of profits. Capital is abundant in this world today, but access is not.
Interesting take on the fees, Sam! After 8 years as a service financial advisor at various firms, I recently joined one that charges under 1%. Most other firms I’ve been with had tiered fees starting at 2% and dropping to 0.75% based on AUM, with lower fees often reserved for clients with $5M+. Some justify higher fees with access to private equity, options strategies, or stock picking, and some of them include full planning, tax projections, or estate planning. Heck, my current firm also provides business advisory services for small business owners. Given the time and dedication involved in truly serving clients as fiduciaries, I believe 1% is very fair for the comprehensive services offered. Would you agree?
I enjoy your posts about the reasoning/fears of your investing experience. Thank you.
Thanks for reading. Investing needs to have a purpose. But fear and greed gets in the way of that purpose sometimes.
Great post, Sam.
I agree about overconfidence being the biggest worry for investors today. When times are good, we tend to get sloppy with our asset allocation. We think our investments will keep rocketing to the moon.
Don’t forget as recently as 2022 when the S&P 500 declined 20% and tech stocks declined by 40%+!
Stay vigilant everyone and talk to someone who has more investing experience than you.
Yes it’s so true that we often take advice better from teachers and professionals more than our spouses, parents, and friends. Some of that has to do with tone and delivery of the information and some of it is just due to the difference in the relationship overall.
I had a consult many years ago that was pretty insightful. It was helpful to get a completely new set of eyes looking at my portfolio make-up. There were things I hadn’t thought of in terms of risk and returns. Given how much time has past, I think it’s time for me to to it again. Thanks for the friendly nudge.