If an advisor gives you no advice at all, then that could actually be the best advice
27-Sep-2022 •Dhirendra Kumar
It's an experience everyone has had. You go to a doctor, or as it happened to me, take a family member to a doctor. The doctor makes a diagnosis and recommends some 'lifestyle' medicine like exercise, diet etc. The patient is disappointed. Contrast this with another doctor who prescribes four tests and a scan and then a few expensive medicines.
How do people react to these two situations? When I narrate it like this, most of you would sense where my preferences lie, but in the real world, when the patient feels that there is something wrong with her or him, and when no one else is paying any attention, it is natural to prefer the second type of doctor. We've all done it - I know that I have. It's human nature. We all like our problems to be taken seriously, and feel taken care of when 'something is being done' about our problems.
A lot of people, when faced with an experience like the one with the first doctor, would even resent paying a fee because the doctor did not do anything. The result is that the marketplace pushes doctors towards the second type of approach. There's not much financial success and growth in the second model, even though it's the second type of doctor that provides a real healthcare service.
Since you expect this page to be about saving and investing, I'm sure you've figured out where I'm going with this. There is an exact parallel between the medical situation that I have described and the whole activity of getting advice and guidance on personal finance. I've faced this personally many times, although in an informal capacity with friends and family. An acquaintance approaches me for investment advice. I look over the investments, listen to the person's financial requirements and then say that everything is fine, keep doing what you are doing - no action needed. Quite often, I can see the disappointment in their faces. They feel I wasn't listening at all and have not tried to think carefully.
Surely, they feel their portfolio can be improved but I'm not bothered. Sometimes, it's even worse. I can see that they won't be able to meet their financial goals but there is nothing much wrong with the actual choice of investments - only they need to invest more. This advice, that people should save more and invest more, rankles even more. To the other person, it sounds like I'm not bothered at all. You want more money, then save more money. This is a problem that every sincere financial advisor faces, whether working professionally or not. In fact, it's also a problem that investment tuning tools in apps and websites face. On our Value Research Online Premium service, we have highly capable automated tools that can tell you a lot about your investments, or sometimes, tell you that there's nothing to tell!
The net result is that the second doctor comes into the picture. You get the financial equivalent of the doctor who will order various tests and scans and come up with a few diseases which need special treatments. For instance, you will never (and I really mean never) find a financial advisor from a bank or some other large company who will tell you that all is well with your investments, or even that very little has to be done. Why? There's no money in it. However, we must recognise that this is enabled by our own instinct that the more someone does, the better it is for our investments.
The whole idea of continuous action is actually quite misguided. When I think of the actual activity that should take up most of the time of investors, then it should be nothing, provided they have built up a good portfolio. For most - almost all - of the lifetime of an investment, you should be doing nothing about it. The bulk of the activity (although that's not the right word) of investing is waiting. Waiting for months and years while your investment grows.
Suggested read: How to be a boring investor