🧗 What is Wealth Management, and Why Should YOU Care?

OIJ (#22) Ever wondered why successful people are obsessed with money management? Here's how professional deal with it

My dear fellow Hermits 👋

Welcome back to 🧙‍♂️ The Hermit 🧙‍♂️

ICYMI:

📈 Investment Thesis: Century Casinos (write-up)

💼 The Hermit Portfolio: December Update

🎙️ C-Suite Interviews: Raketech CEO & CFO

If you haven’t yet, subscribe to get access to this post, and every new post

🕹️ The Inevitable Game

Your profession doesn’t matter - if you’re any good at it, you’ll eventually level up and face the ultimate boss fight: the game of games, aka money management.

How you approach this game is entirely up to you.

But after a decade of navigating the market and the grueling process of earning certifications (yes, multiple times - we’ve done the paperwork, so you don’t have to), here’s our take.

At its core, the approaches boil down to three distinct paths: total delegation, partial delegation, or doing it yourself. Each path comes with its own unique set of trade-offs:

• Total Delegation involves handing over the reins entirely to professionals. This is a stress-free option for those who want to focus on other priorities. However, it requires choosing a decent manager. You'll need to account for fees and potential misalignment of goals.

• Partial Delegation is a compromise in which you retain some control but rely on experts for specific aspects, such as investment strategy or tax optimization. This approach demands communication and a clear understanding of your goals while allowing you to offload tasks you might not excel at.

• Do-it-yourself is the ultimate hands-on approach. It is for the self-reliant, the curious, or those who believe no one can care as much about their money as they do. This approach requires time, dedication, and a steep learning curve. The upside is complete control and potentially lower costs.

The question isn’t just about which approach to choose but also about understanding your temperament, time constraints, and ultimate goals.

The game of games doesn’t have a one-size-fits-all strategy - it’s about finding what aligns with your ambitions and comfort level. And remember, the best approach is the one that keeps you playing the game for the long run.

🧑‍💼 What Is a Financial Advisor?

A financial advisor (FA) is someone who helps you manage your money, plain and simple. They can guide you on saving, investing, planning for retirement, or even passing wealth down to the next generation.

Think of them as your money coach - but how good a coach they are varies widely.

The Spectrum: From Excellent to “F*cking Roaches”

Some financial advisors are excellent. They genuinely care about helping you grow and protect your wealth. They’ll dig into your goals, craft a strategy tailored to you, and stay proactive about keeping you on track.

But let’s be real; others are the human equivalent of roaches. They’ll push whatever earns them the biggest commission, often with little regard for your best interests. Here are a few indicators:

• Asset Gatherers: Fee-focused, not results-focused

• Own or Bank Product Peddlers: Sales reps in disguise

• Disregarding Low-Cost Equity ETFs: Ignoring simple, proven solutions

• Using Complex Derivatives: Dressing up risk as sophistication

Individual vs. Institutional

Individual financial advisors work directly with you, often offering highly personalized service. They might be independent or part of a small firm.

On the other hand, institutional advisors, like private bankers at large financial institutions, serve wealthier clients or families and tend to offer a one-stop shop: investments, estate planning, tax strategy, you name it.

Institutional services can feel seamless but can also be less tailored if you’re not on their VIP list. In either case, alignment should be your #1 criterion.

What Do They Actually Do?

At their core, FAs and private bankers help allocate your wealth, manage risks, and plan for the future. They create strategies to grow your investments, minimize your taxes, and protect your assets.

They’re also there to remind you not to panic during market dips or make rash decisions when things look too good to be true.

Their job is part strategy, part therapist.

Should You Work With One?

Here’s an easy way to tell: How often do you check and stress out about your investments? If the answer is daily or weekly, consider delegating.

A financial advisor can be invaluable if you’ve landed on a pile of money - whether through a high-paying job, a windfall, or successful investments - and don’t have the time, interest, or brainpower to manage it yourself.

They help you avoid costly mistakes and ensure your money works as hard as you do. But if you’re the type who enjoys learning the ropes and handling things solo, you might be better off managing your wealth yourself, at least in part.

The bottom line? FAs are tools. The right one can make your financial life much easier, but like any tool, they’re only as good as how you use them - and who’s wielding them.

⚔️ Why Partial Delegation Isn’t a Great Idea

Partial delegation seems like a good compromise - you handle some things, and an advisor handles the rest. But in reality, it often causes more problems than it solves. Here’s why:

1. Confusion Over Roles—It’s not always clear who is responsible for what. If something goes wrong, is it your fault or the advisor’s? This lack of clarity always leads to costly mistakes.

2. Mixed Strategies—Your goals and your advisor’s strategies might not align. You could invest aggressively in one area while they play it safe in another, making your overall plan less effective.

3. Extra Effort for You—You must monitor your finances, coordinate with your advisor, and ensure everything is in order. Partial delegation can feel like doing all the work without the full benefits.

4. Higher Costs, Less Value—You might pay similar fees as full delegation without getting the same level of service or expertise. It can feel like money wasted.

5. Things Fall Through the Cracks—Without a single person managing the full picture, important details like tax strategies or how investments interact can be overlooked.

Full delegation streamlines everything, and your advisor is fully accountable for the results.

If you really want to do your own thing, just take out 10-15% of your money and play around independently. Partial delegation sounds nice, but it’s more hassle than worth it for most people.

💡 Do it Yourself

Doing it yourself requires time, skill, and the right temperament. You can take a wide spectrum of approaches, ranging from low-cost indexing to dedicating yourself full-time to in-depth, scuttlebutt-style company research.

The choice is entirely yours.

We’ve compiled a detailed guide on how and why you might consider managing your finances. Check out the full free post here:

🧗 OIJ (#7) 10,000 hours of Scuttlebutt

🙏 Feel free to ❤️ and comment so that more people can discover and enjoy this Substack 😇