To Zero and Beyond: The Great Race to Nothing!

With so many online trading platforms recently rushing to offer clients trading capability for zero commissions, one might wonder what the bigger picture is. It can be tempting for any investor with the slightest bit of trading skill to jump into trading for nothing. However, there is one old adage that has rung true since time immemorial. That adage says “You get what you pay for!” As it held true so long ago, it holds true well through present times.

The technical aspects of trading or investing for yourself are not hard to master with a little training and practice. Yet, understanding that more than technical patterns or historical models govern the markets escapes many investors when planning for retirement and building a wealth management legacy for families or business. The short-term thrill of realizing quick gains from frequent trading often creates euphoria for the trader. But what happens when those investors lose perspective of long-term trends or refuse to look outside of one’s own confirmation bias? The answer is that such investors or traders slowly become lulled into a false sense of security. It leaves them unprepared for the economic shocks that eventually rear their ugly heads every decade or so.

It is much easier to absorb portfolio losses and shocks from the short-term such as a few weeks, a few months or even a couple of years. When a decade or a lifetime’s worth of diligent, disciplined investing work suddenly becomes susceptible to market crashes, all of the trading for free and “do-it-yourself” investing strategies become worthless. Many investors realize only then what was overlooked in the process as they perform their portfolios’ postmortems in hindsight. Online brokerages and trading platforms do not sustain themselves through commissions or fees since they have other means to profit. It might be comforting as a do-it-yourself investor to have such flexibility to trade for your own portfolio. Yet, all of the robo-advice and marketing gimmicks from inexpensive platforms will be of no comfort when you are left to “do-it-yourself” as economic conditions turn sour during the next downturn. As an investor, how would you respond if plans head south?

It is the opinion of Scherschel Wealth Solutions that a recession or market crash is not imminent and that further upside still exists for the indices over the next couple of years. Nevertheless, it would still be prudent to look forward to and prepare for future unknowns by benefiting from third-party perspectives. About once every decade, business models and practice trends for the financial industry morph into new paradigms by developing new products or through re-branding. Firms and investors who preempt those changes determine who will be adequately suited to weather coming storms or, at the very least, remain at the avant-garde of wealth management practice and caring for one’s future. It is critically important to stay abreast of such changes and not be caught behind the curve when saving and planning for retirement. Perhaps the best way to prepare for such unknowns is to learn to become comfortable with uncertainty and figure out methods to plan for multiple life contingencies.

The major online trading firms keep enticing the general investing public with new features, tricks and trendy yet oversimplified commercials. As for my clients and I, we will remain true to the principles of steady due diligence by watching the bigger picture of market conditions and by responding smarter than chasing the hot-dot all the way down to zero. Too many financial advisors and wealth managers hear financial horror stories from clients or “someone who knew someone” who lost much of their savings because they refused to seek out or heed well offered independent assessments. Instead, they relied solely on what they believed to be their own correct analysis, when in fact it was only confirmation bias as a result of small sample, short-term positive results.

Will you be adequately prepared when the time comes for the next major economic earthquake? Remember, we may not know ahead of time what will trigger the next crash, when it will start or how long the next downturn will last. What we can be sure of is that another crash will eventually come. A good financial advisor or wealth manager can offer the 30,000 foot overview of market conditions that often get overlooked by the minutiae of daily market news and the whiplash of positive to negative headlines.

If you seek financial advice or are uncertain about your investment portfolio, Scherschel Wealth Solutions would be pleased to offer you a complimentary analysis. Please contact Louis Scherschel to discuss further.