advisorEvery day I help clients plan for the future, make appropriate trade-offs about where to spend more or less, understand their long-term goals and savings needs, and build portfolios designed to carry them through their lives. Although I support these activities, they aren’t the most valuable service I provide.

I’m convinced that the most valuable thing an advisor can do is help clients avoid making big financial mistakes, so I try my darnedest to do it well. Fortunately, there is a relatively short list of mistakes that investors make in a fairly predictable manner. Unfortunately, any one of them can wreak havoc on a long-term financial plan. The three mistakes I see investors make most often are:

  1. JUMP ON THE BANDWAGON: As a market, a sector, or a specific investment’s price skyrockets dramatically, investors can be relied upon to pile into it en masse. This behavior pushes the price even higher, proving them right for a time . . . until the market proves them horribly wrong.
  2. PANIC: If the same market, sector, or investment declines precipitously in price, those same investors forget their plan and long-term time horizon and succumb to fear. Individual investors will liquidate their well-diversified holdings one by one until institutional investors recognize the value proposition offered by lower prices and swoop in to buy those investments on the cheap.
  3. OVERSPEND: We all spend money we know we should be saving. We convince ourselves we need to buy a new car. Or that this is too good of a deal on the latest phone to pass up. Or that we deserve to stay at that 5 Star Hotel “just this once.” For many of us, opening our wallets is far too easy when a buying opportunity knocks. Our anxiety levels are so high and our energy levels so low that we can’t resist the little endorphin hit spending promises, but our financial future is a high price to pay.

All of these mistakes stem from the same impulse: putting right now ahead of always.

We fall in love with an investment, forget reversion to the mean, and go all in. Or we are terrified of a potential doomsday outcome, so we sell volatility to protect our assets, which alleviates our short-term term pain but undermines our long-term plan. Or we give in to immediate temptation at the expense of our future well-being. None of these mistakes is inherently worse than the others. As I see it, the biggest mistake is the one my clients are about to make. My job is to stop them!

There’s no question that our perceived needs and wants are powerfully compelling in the moment, but don’t lose sight of your big picture. An advisor who can help you look past your immediate emotional needs in the right now and keep you focused on your always is an advisor who has earned her (or his!) fee in my book.