Are You a 'Financial Overwhelm Loop' Victim?

I’m in the final stages of finishing my manuscript for the book I’m writing for Wiley & Sons, which reveals a number of the tricks that the financial industry plays on the individual investor.

I thought I’d post an except from the book for you, and would appreciate your comments on it!  Please read the following, and then post a comment with any thoughts you have, or if it caused any interesting ideas for you.

The“Financial Overwhelm Loop” Revealed

As you grow up and get through high school and then possibly into university, college or directly into the workforce, you become acutely aware of all the financial things out in the world you know nothing about.  You begin to hear about the stock market, registered accounts, mutual funds, real estate, paying taxes, corporations, stock brokers, cash flow, contribution matching, market timing, diversification, dollar-cost-averaging . . .  the list is endless.

Predictably, since you’ve never been taught any of these things, they cause you anxiety and concern, because you have no idea what they are, or what you should be doing.  As you accumulate some money, you have a sense that you should be doing something with that money, but you just don’t know what that should be. 

You begin to feel a sense of overwhelm at trying to figure out what to do. 

There don’t seem to be any other logical solutions.  Your parents don’t seem to be able to offer any intelligent advice, and your friends don’t seem to understand things any more than you do .. so you do what most people do in this situation, and turn to a financial advisor to ask for some help. 

And then it begins.

You feel a sense of relief as you hand your responsibilities over to someone who is an “expert”, that will take care of your money.  When you meet with them, they sound very smart, and they gain your confidence that you’ve selected the right person.

Of course, since you don’t know to ask, they don’t discuss their compensation or how they are going to profit from working with you.  Rarely does the nature of your relationship with them get discussed in detail.  All you know is that they’re going to manage your money, and grow it so that you can enjoy a wonderful retirement. 

You then essentially ignore your financial situation, trusting it to someone else.  You don’t educate yourself, or learn about new products and services coming out in the marketplace.  You don’t pay a lot of attention to the fundamentals of the markets.  In fact, you can’t, because you wouldn’t know where to start.

But you carry on with your career or your business, your family, and all the other priorities you have.  Besides, you’ve got enough going on in your life, and the last thing you need to do is try and become a financial expert.  You’ve never been good with numbers, and it’s just not your skill set.

You do what you need to do, and your advisor manages your money, and everyone lives happily ever after. 

Right?

Unfortunately, most investors find out at some point that while this fairy tale is easy to believe, it rarely comes true.  Eventually, out of nowhere, some kind of financial problem occurs.  There’s a meltdown in the stock market, or interest rates are increased without warning, or your portfolio takes a hit for some reason that you’re not clear on.

And here you are, looking to your advisor for help and reassurance. 

And what do they tell you? 

‘Don’t worry’, they say. 

‘Now is not the time to panic.  We’re in for the long haul, and now is a terrible time to pull out’. 

They tell you that they think the market’s about to come back, and try to calm you down.

So here you are, feeling trapped, because you don’t have any idea how to interpret what’s going on, and blindly relying on someone you hope knows what they’re doing.  You’re back into ‘overwhelm’ because you don’t know whether you should fire your advisor, or if you should stick with it ‘for the long run’.

And this vicious circle continues over and over – blindly trusting others with your money, and then failing to become educated so that you can make better decisions in the future.  For many investors, this cycle repeats itself for their entire lifetime. 

Some investors switch advisors during a downturn, while others stick with them, hoping that at some point things will turn around.

Now, don’t get me wrong – as I’ll outline in the next chapter, I don’t think that the entire financial industry is out to get you, or that you can’t trust any financial advisor. 

While there are definitely some serious problems in the way that the system is structured (and work against the interest of the individual investor), I do believe that most of the people in the financial sector are honest and want to help you.  Unfortunately, as you’ll see, many of them don’t even know the damage they’re causing to their clients. 

In any case, the point you need to get right now is that no one will take better care of your money than you will.

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As I said, if you can relate to what I’ve said here or you have any comments, please post them so that I can incorporate them into my book!