"There is no such thing as a free lunch." Milton Friedman
This is not what I wanted to talk about after my last post, but here we are.
Your relationship with an advisor, any advisor, even a blogger like me, should be based on trust. It's the same as your relationship with your family doctor, lawyer, or tax accountant. It's OK to seek a second, or a third, or even an n-th opinion but once you decide on a course of action, you should trust the person whose advice you are taking. Otherwise, nothing good will come out of it, and to avoid you both a lot of trouble and misunderstandings, it's better to seek another specialist whose opinion you will be able to rely on.
When it comes to financial advice, it's important that the client's view of the investment world at least somehow matches the advisor's. A professional advisor can work with a client who has a completely different view on things but they would be both more comfortable with each other if their views at least somehow converged and were not exact opposites. What I mean by that is let's say a conservative advisor is not the best fit for a client who is all about high risks and active trading and vice versa. And again, an advisor can have one approach to their own money based on their own particular situation. They may or may not take on more risk than they recommend to their clients, and it's OK because advisors are sophisticated investors. They have knowledge and expertise to understand and take more risks on their own behalf if they choose to do so. Their clients' situation can be a very different story.
As most of the advisors I know and have worked with, I am quite conservative. We are usually dealing with clients' life savings, money for retirement, big purchases, or their children's or grandchildren's education. We cannot and under no circumstances will not gamble. However, when it comes to tactical details, different advisors can have different takes on things. And I think it's important for you, as my readers, to understand mine early on because maybe I am just not the right person who you should be reading and following here.
My approach to things can be very different and sometimes unconventional, and it's partially defined by the attitude towards money in my family, and how I was brought up to treat it. And of course, it's influenced by my education and work experience in the field.
I strongly believe that we are not that rich to buy cheap things because they break and we end up paying many times over in the end, instead of paying more initially and investing into something long-lasting and durable. Instead of buying five cheap dresses, I would rather buy and have an expensive one, and that's the approach I take and recommend.
If you are looking for advice about how to cut spending, crunch every penny, and downsize your lifestyle, you won't find much of it (if any) here. Yes, controlling your expenses and budgeting is important but it's also very important to understand the following cornerstone principle which applies to both life in general and finance in particular: There is no free lunch. If you are not buying it, then you are paying for it with something else. If you don't pay for the membership somewhere, then the chances are you are a product.
Exhibit A. We don't have to pay for our social media accounts like Twitter, Instagram, or Facebook. Actually, even if we wanted to pay, I'm not sure, we can. Our content, our searches, our preferences, and we ourselves become a product, and that information is sold to companies who are interested in targeted advertising.
Exhibit B. Free bank accounts. Many financial advisors, including Erin Lowry from Broke Millennial Blog, the one that I really like but with whose recommendations I don't always agree, suggest getting free banking products to stop paying fees. What they fail to say is again, You get what you are paying for. And if you don't pay at all, you should ask yourself some very good questions:
(a) Are you ready to pay for it otherwise let's say with your time or some inconvenience?
(b) What's the actual price, and
(c) is it really worth it?
Please stop for a moment and think about it next time you choose something "free".
To be expanded and continued later.