DIY Wealth Management

by Jeff C. Johnson

Man with notepad at computer

I met with my longtime retired client at his home last week. He’s a great guy, and he has had a solid life-income plan in place for many years. He doesn’t worry about money or his cash flow.

We reviewed his results and looked at our best estimate of his potential success in meeting his goals, and it was very high. I also took an inventory of the investments and assets he had elsewhere. He had some money in bank certificates. He had some old, old mutual fund positions held by the fund vendors. They weren’t great funds, but there were big, untaxed gains in place, so no reason to make any changes there.

Then, for the first time, he told me about the “Do-It-Yourself” account he held with a discount brokerage firm. He thought his results were pretty good, too. So, I said, “Tell me about that.”

Turns out that when he retired (about 15 years ago), he had a small IRA, and he moved that money not to my firm but to the discount broker so he could buy and sell stocks on the cheap. This doesn’t hurt my feelings at all. People who want to trade on their own for recreation shouldn’t be paying me to do transactions when they don’t need (or want) advice.

After 15 years, what do you think the value of the account should be? Using the Rule of 72, the portfolio should have roughly doubled from its original $25,000 to $50,000 in 10 years at an average return of 7.2 percent. I was thinking the value should be around $70,000 after 15 years, assuming a high single-digit average return.

He was very proud to report that the $25,000 starting value had grown to a little more than $40,000. When I did the calculation of the average annual return, he was surprised at the low figure. Still, he enjoyed being “in the market,” and the account will remain with the discount brokerage. With this small corner of his portfolio, I assured him, he could be a do-it-yourself stock market investor because he is NOT a do-it-yourselfer with his overall wealth management.

Hopefully, my students from Finance 260 at the University of Nebraska-Lincoln are saving and investing in low-cost, broadly diversified mutual funds, as I have taught them. Beginners need only a little direction and some understanding about the long-term results of “owning a piece of America,” and they can be successful as do-it-yourself investors by making regular and consistent additions over a working lifetime.

When it comes to do-it-yourself wealth management, the coordination of all things financial in one’s life, it’s as foolish as functioning as your own physician. When it comes to health and wealth, the cost of service is a fraction of the cost of mistakes.

If you’re reading this post and you have been highly successful in investing and managing your own financial world, by all means you should keep doing it. You are in a small minority, and congrats.

However, if you are struggling to get on track and hopeful of having a sense of financial confidence, find a wealth adviser you can trust without delay.

Not sure how to find one?

In my book The Eight Points of Financial Confidence, I share a detailed approach to finding and retaining the right adviser.