Part 1: Empower Your Wealth: Become Your Own Financial Investment Manager

As a business school professor, I’ve often found myself diving into the concept of disintermediation. If you're new to the term, disintermediation is essentially the removal of the middleman from a process or transaction. For example, if you purchase something directly from a producer instead of a store, you're cutting out the middleman—the store—which is disintermediation in action. This phenomenon frequently occurs with the aid of technology, like buying directly from a website instead of a physical shop.

Sometimes, disintermediation can obliterate an entire industry. Take the travel agent business as an example. Picture a time when planning a trip required a visit to your local travel agent. You’d sit across a desk, flipping through glossy brochures while the agent made calls and input details into a computer. The agent controlled your travel experience, dictating options and handling bookings. It’s almost comical to think about now, isn’t it?

Platforms like Expedia and Travelocity shifted the power dynamic, placing travel planning directly into the hands of consumers. Flights, hotels, and car rentals could be booked with a few clicks, completely bypassing the middleman. Nowadays, most people under 40 probably haven’t even heard of a travel agent.

The Slow Burn of Investment Disintermediation

Now, let’s consider the investment industry. Disintermediation here is happening at a snail's pace compared to the travel industry. A December 2022 FAIR Canada Investment survey revealed that a majority of investors (77%) still rely on an advisor despite the fact that modern technology has democratized investing, making it accessible, efficient, and user-friendly.

Here’s a personal anecdote: some of my wealthiest friends are investment advisors. Yet, intriguingly, my richest friends who aren’t advisors manage their own money. This piqued my curiosity—was there a secret I was missing?

At the urging of a particularly affluent friend, I scrutinized the statements from my investment advisor over the past five years. I calculated how much my portfolio had grown and how much I’d paid my advisor for this growth. Let’s just say, based on these results, I might have chosen the wrong profession. And to rub salt in the wound, the highest book-to-market ratio came from Shopify stock—something I had picked and called my investment advisor about.

The True Cost of Financial Dependence

Why, I wondered, are we so dependent on investment advisors that we’re willing to give them an average of 1.5-2.5% of our portfolios annually? We have the tools and technology to achieve comparable growth results and keep that 1.5-2.5% for ourselves.

If you think 1.5-2.5% isn’t much, let’s run a few scenarios:

Let’s imagine that someone contributes $10,000 per year into an investment account from the age of 25 to 65 for a total contribution of $400,000 and assume that the average annual return on the stock market over the next 40 years is approximately 10% per year, as it has been for the past 40 years, as measured by the S&P 500 index.

  • Scenario 1: If you invest $10,000 annually from age 25 to 65, with a 10% annual market growth rate and a 1.5% advisor fee, your portfolio would be worth $3,078,717, and you’d pay your advisor $529,327.
  • Scenario 2: With the same investment and growth rate but a 2.5% advisor fee, your portfolio would be worth $2,284,000, and you’d pay your advisor $714,620.
  • Scenario 3: Without any advisor fees, your portfolio would be worth $4,868,518.

That’s an extra $1,789,801 to $2,584,518 you could keep.

What would you do with that money?

Fear and the Illusion of Complexity

Despite this knowledge, many will still cling to their investment advisors. Why? Fear. My 80-year-old mother hesitates to buy a plane ticket online because she doubts her ability to execute the task correctly. Similarly, many don’t believe they possess the financial acumen to navigate the world of investments.

If you had to pause watching "The Big Short" to google "Collateralized Debt Obligation" or "Credit Default Swap," you’re not alone. However, you don’t need to understand complex financial instruments to build a well-balanced investment portfolio. Keeping that 1.5-2.5% for yourself can create the financial independence you deserve.

The Importance of Financial Independence

Financial independence is about more than just covering your expenses; it’s about having the freedom to make choices that benefit you and your family. Whether you want to retire early, travel the world, start your own business, or simply have a safety net for unexpected events, controlling your investments is crucial.

Overcoming Misconceptions and Fears

Many hesitate to manage their investments due to misconceptions and fears, including:

  • Complexity: Investing seems overly complicated.
  • Risk: Fear of losing money in the stock market.
  • Time: Concern about the time investment required.
  • Lack of Knowledge: Feeling unprepared or uneducated about financial matters.

This series will address these concerns head-on, providing clear explanations and practical advice to help you overcome these fears. You’ll learn that investing doesn’t have to be complex, risk can be managed, you don’t need to spend all your time on investments, and anyone can become a knowledgeable investor with the right resources.

The Journey Ahead

This series will guide you step-by-step through the process of becoming your own financial investment manager. We’ll start with the basics of investing, building a solid foundation of knowledge. Then, we’ll delve into advanced topics such as asset allocation, diversification, and risk management. We’ll also explore Ray Dalio’s principles-based approach to investing.

By following the principles outlined in this series, you’ll be equipped to build and manage a diversified investment portfolio aligned with your financial goals and risk tolerance. Along the way, we’ll provide practical tips, real-life examples, and insights from successful investors to help you navigate the world of investing with confidence.

What You Will Learn

Here’s a brief overview of what you can expect to learn:

  • Understanding Investing: Key concepts such as risk and return, compound interest, and market cycles.
  • Ray Dalio’s Investment Philosophy: Dalio’s "All Weather Portfolio" and the importance of diversification and balance.
  • Setting Financial Goals: Aligning your investment strategy with your financial objectives.
  • Building an Investment Strategy: Developing a strategy based on your risk tolerance, time horizon, and financial goals.
  • Diversification and Asset Allocation: Managing risk and maximizing returns through effective portfolio diversification.
  • Choosing Investment Vehicles: Exploring various options, including stocks, bonds, real estate, commodities, mutual funds, and ETFs.
  • Risk Management: Techniques for managing risk, including diversification, asset allocation, and hedging strategies.
  • Creating and Maintaining an Investment Plan: The importance of regular review and rebalancing.
  • Psychological Aspects of Investing: Overcoming common psychological biases to make rational investment decisions.
  • Utilizing Technology and Tools: Leveraging investment apps and tools to enhance your strategy.
  • Estate Planning: Tax-efficient investing strategies and the basics of estate planning.

Taking the First Step

Your journey to becoming your own financial investment manager begins with a single step. By reading this far, you’ve shown a willingness to take control of your financial future. Remember, you don’t need a background in finance or be a math wizard to be a successful investor. All you need is the desire to learn and the determination to apply what you learn.

As you progress through this series, take your time to absorb the information and put it into practice. Investing is a marathon, not a sprint, and the knowledge you gain will serve you well throughout your life. Be patient with yourself, and don’t be afraid to seek help or ask questions if something isn’t clear.

The Power of Knowledge

Knowledge is power, especially when it comes to managing your finances. By educating yourself about investing, you’re taking an essential step toward financial empowerment. The more you know, the better equipped you’ll be to make informed decisions that align with your goals and values.

Managing your investments may seem daunting at first, but remember that every successful investor started somewhere. The key is to take it one step at a time, continually learning and adapting as you go. With persistence and dedication, you can achieve financial independence and take control of your financial future.

We live in a world where financial markets are more accessible than ever before. With the right knowledge and tools, you can take charge of your investments and build a secure financial future. This series is your guide to becoming your own financial investment manager, providing you with the information and confidence needed to navigate the world of investing successfully.

Thank you for embarking on this journey. I’m excited to help you take control of your financial future and achieve your financial goals. Let’s get started on the path to financial empowerment!

Empower Your Wealth: Become Your Own Financial Investment Manager is a 20 part series that teaches readers how to self-manage their investments. It covers basics to advanced strategies, emphasizing the importance of financial independence, diversification, risk management, and technology. 

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