I've been a financial adviser for more than 20 years, and here are 4 of the biggest investment traps I see people in their 30s fall into

Jonathan DeYoe

Twenty years into my career as a financial adviser, I still love going to the office every day. I am blessed with a great team and a fantastic group of clients with whom I share many personal affinities. I find it particularly satisfying to help the young professionals — many of my favorite clients are in their 30s — set their goals, build their wealth, protect it, and shepherd it for the future, one careful financial step at a time. 

That said, there are definitely pitfalls that can make taking those steps a lot more challenging than it needs to be for my clients — and you. Investors will do well to look both ways before crossing Wall Street, so that they can avoid these 4 big investment traps that I frequently see young professionals fall into:

1. The Siren Song
2. The Product Du Jour
3. The Myth of Performance
4. The Salesperson in Adviser's Clothing

The Siren Song: Don't let the sheer volume of noise generated by the financial media seduce you. The financial media does not care about you. They do not know your name. They don't know your financial plans, either. They are not there to council you on how to reach your financial goals. They aren't even there to inform you of economic or market realities. The financial media is there for one thing only: to capture your attention. Because the more of your attention they capture, the more they earn for advertising. If the financial media really had your best interests at heart, they would talk non-stop about boring but time-tested investment practices like asset allocation, rebalancing, and dollar cost averaging. I guess the lifetime benefits of planning, balanced portfolios, and emotional intelligence don't drive mouse clicks.

The Product du Jour: Financial industry behemoths constantly invent new investment products to resolve yesterday's crisis or capitalize on yesterday's hot trend, and investors buy those products to take advantage of yesterday's upside or avoid yesterday's debacle. The problem with yesterday? It isn't today! Ideas focused on yesterday's markets will not help you with tomorrow's markets. The chances that an individual, money manager, or sophisticated computer algorithm can consistently beat the market are next to nil. Investments that perform the best over a 1 year or 3 years period rarely sustain that performance for a decade. That is not how it works. That is not how it has ever worked.

The Myth of Performance: You can always find someone who will tell you exactly what you want to hear about the amazing returns they'll generate for you and your investments. What you really want is a financial adviser who will tell you what you need to hear about your own financial behavior. Unfortunately, I can't count how many prospective clients have asked if I can meet or beat the insane portfolio performance another adviser promised them. Do these advisers actually believe they will be able to overcome the overwhelming evidence that past performance is no guarantee of future results? Do they really think they are the one adviser in history who will prove (despite all research to the contrary) that markets are predictable by solving some secret formula? What client will stay with them after they figure out the numbers don't add up?

Of course, investors of all ages walk willingly into the performance trap. They want to believe that equity performance without equity risk is possible. But it's not. They misguidedly think that the adviser who claims they can secure an 11% return is better than the adviser who says a 9% assumption would be more realistic. They'd rather place a big bet on unlikely potential “returns” instead of doubling down on the things investors can actually control, like earning more, saving more, and contributing regularly to a portfolio with the amount of risk that's appropriate for their needs. If your adviser is selling you the intangible outcome of “performance” instead of coaching you toward behaviors that will make you more successful, step away from the table.

Jonathan DeYoe

The Salesperson in Adviser's Clothing: A lot of folks are confused about what a financial adviser actually does, so they'll mistake a salesperson trying to pitch them a product for a skilled professional offering sound financial advice. This confusion benefits product manufacturers, the sales pros earning high commissions, and the financial media raking in those advertising dollars, and it harms investors like you who deserve competent, non-biased financial advice. You'll know you've found a genuine financial adviser if the conversations revolve around what actions you can take to realize your short and long-term financial goals. Look for an adviser who provides these 4 key services that can transform your financial life: 

1. Planning and decision support to help you define your financial needs and make the trade-offs that are appropriate for you and your family.
2. Portfolio design that takes your long-term goals and risk tolerance into consideration.
3. A sense of perspective that encompasses economic and market history and looks beyond today's headlines and the crisis du jour.
4. Education and behavioral advice to increase your understanding of the financial world and develop the lifetime habits that lead to prosperity.

You'll notice that superior investment performance is conspicuously absent from this list. That's because making a killing in the stock market isn't necessary to create, build, and shepherd your wealth for the future you want to create. It drives me nuts that the slow but steady investment approach I advocate isn't considered hip these days, but I know what works. That's why I adhere to the old-fangled notion that working hard, saving hard, and investing early and often is the best approach for young and old professionals alike.

Don't fall into the trap of believing that any siren, investment product, performance, or salesperson can provide you a shortcut to wealth. The earlier you understand that your financial success is in your hands, the more successful you will be. 

Jonathan K. DeYoe, AIF and CPWA, is the author of Mindful Money: Simple Practices for Reaching Your Financial Goals and Increasing Your Happiness Dividend. He is the founder and president of DeYoe Wealth Management in Berkeley, California, and blogs at the Happiness Dividend Blog. Financial planning and investment advisery services offered through DeYoe Wealth Management, Inc., a registered investment adviser.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations to any individual. For your individual planning and investing needs, please see your investment professional.

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