I heard a great comment recently.
Don’t confuse movement with progress. A rocking horse moves, but never goes anywhere.
Although it was from a sports clip, it took me instantly to my world of financial planning.
The financial services industry is a big and confusing world. And we do our best to only make it more confusing.
A lot of what looks like progress is like a rocking horse – movement that never goes anywhere.
I’m targeting all those active managers who constantly are trading.
There’s lots of activity through continuous buying and selling within accounts.
The outcomes of these movements are usually three things.
First, higher taxes due to all the trading.
Next, definitely higher fees paid by clients as this trading benefits advisors who charge for more movement.
Finally, consistently underperforming the indexes. Analysis after analysis shows active management underperforms simply following the index whether it is over the short or long term.
If riding that rocking horse that is active management is your thing, that is fine. However, don’t be surprised when all that movement never gives you any progress.
I’m Dan Johnson, CFP®, founder of Forward Thinking Wealth Management. I run a flat-fee financial planning and investment management firm located in beautiful Akron, OH. Although I am in Akron, OH, I work with clients regardless of location. I cater to owners of equity compensation positions who are looking to organize their financial lives, keep more of what they make, and do the things they want in retirement and even now.