No I am not crazy – well at least I am not crazy when it comes to today’s topic!

  • You should pay your advisor to do nothing

The reality is “nothing” is “something”; and, sometimes the best alternative is the “do nothing” alternative.  The challenge is that we are wired to believe that we MUST continually be taking actions.  Today we are going to discuss why “doing nothing” is often the best alternative – both in finances and in life.

I was introduced to the “do nothing” alternative back when I was an undergrad engineering student.  You would look at a number of possible alternatives and the “do nothing” alternative was always something that needed to be considered.  Here is the irony – and one reason that “do nothing” feels wrong:

  • The “do nothing” alternative was almost never the right alternative!

Repeatedly during my educational experience I faced problems where I evaluated alternatives and the “right” answer was almost always to take an action.  Whether I acknowledged it or not, that had an effect on the way that I think.  In particular, it programmed a bias in to my mind that the “do nothing” alternative was rarely the right answer.  However, it ALSO programmed in that the “do nothing” alternative NEEDED to be considered at all times.

My experience is that most individuals receive the same “training” through their education.  They are given various problems and challenges.  They are asked to come up with creative solutions.  To take action.  And they are recognized and rewarded for what they do NOT what they don’t do.  As a result, we are programmed to believe that we must continually do something and that “do nothing” is normally not the “right” answer.

As I transitioned out of the academic environment, both “programmings” in my mind remained:

  • The “do nothing” alternative always needs to me considered
  • The “do nothing” alternative is rarely the right answer

However, as I moved forward in time I found that more and more often, the “do nothing” alternative WAS the right answer.  Most of the time it did not “feel” right, but after careful thought and inspection, it often turned out to indeed be the right answer.  The key is as follows:

  • When you are making decisions, the “do nothing” alternative is a viable course of action that needs to be considered and factored in to your decision making process

That brings us to the point of emphasis for today’s post:

  • Sometimes you should pay your advisor to do nothing

Yes, I did a little bit of “bait and switch” there by including the “sometimes”.  However, I will backtrack with a more absolute statement:

  • You should ALWAYS expect your advisor to consider the “do nothing” alternative

Some examples that illustrate the importance of this concept:

  • You hear that the stock market is over-valued. Jim Cramer is screaming (annoyingly) that you need to buy and sell this.  You call your advisor and ask what you should do.  He or she tells you that you should stick to the investment policy statement (IPS) that you drafted together that outlines how and for what purpose you invest.
  • You get a great opportunity to buy the dream boat that you want. You don’t have the cash available, but one of your co-workers tells you about a great alternative to take out a loan against your 401(k).  You call your advisor to let her know about this alternative.  After some discussion you decide that the dream boat isn’t so dreamy compared to your other goals and decide to forgo the 401(k) loan.
  • You get a call from someone telling you how you can get $50,000 by refinancing your home and “cashing out” the equity that you have “earned” and invest it in the stock market. You call your advisor and together decide that gambling your home equity in the stock market might not be the best idea after all.
  • You take a trip up to Michigan and fall in love with the place you stay. Turns out that there is an opportunity to buy a place right next door.  You call your advisor to see how you might go about purchasing the new vacation home.  After some discussion, you realize that you can take the same trip up north every year and be money ahead without buying the property.

In each of the above cases, the “do nothing” alternative turned out to be the best decision at the time.  Now it’s entirely possible in any of the above situations, taking an action could have been the right decision.  However, in many situations similar to the ones outlined above, the “do nothing” alternative is the proper decision for the individuals involved.

While an advisor cannot make the right decision for you – only you can do that – they can help you walk through the alternatives and consider which one makes the most sense for you.  Many times, that right decision is to do nothing; so, in a sense you paid your advisor to “do nothing”.  However, sometimes those “do nothing” alternatives are the best investment you will ever make.

If you have any questions, thoughts, or comments on this topic feel free to reach out to me at any time.

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F5 Financial Planning, L.L.C. (F5FP) is a comprehensive, fee-only, financial planning firm serving Naperville and surrounding communities.

Led by Curt Stowers, F5FP focuses on providing corporate executives, entrepreneurs, and families with comprehensive financial planning that leads to financial security, simplicity, and success. As an executive with Caterpillar for 18 years, Curt brings real, practical experience to financial planning. Curt is a CERTIFIED FINANCIAL PLANNER™ .  He is a fee-only advisor and works with all clients in a fiduciary capacity.