Preview:

Being a better investor doesn’t require you to spend hours and hours researching the latest trends and market data. The most important change people can make is taking emotions out of their decision-making. It’s much easier said than done, which is why we see people make these same emotional mistakes time and time again.

 

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More About This Episode:

We’re excited to bring on Lee Hyder of Lee Hyder & Associates today to discuss this common challenge that pilots and other investors face when managing their finances. Why do we repeat these mistakes and what can we do to remove emotions from our investing? We’ll explore that in this video and provide you with some guidance on how to overcome this emotional pitfall.

 

Here’s some of what we discuss in this episode:

0:00 – Intro

0:22 – Emotional investing

2:32 – Being active doesn’t mean more success

6:30 – Advice for pilots

9:00 – Watching someone make mistakes

 

Resources:

Retire Pilots – https://retirepilots.com

Get your FREE Retirement Toolkit – https://bit.ly/3ZmZsaX

Pilot Tax – https://pilot-tax.com/

The Pilot’s Advisor Podcast is also on video. Watch & Subscribe on YouTube: https://bit.ly/3EIEBW2

Connect with Pilot-Tax: https://pilot-tax.com/

 

Episode Transcription:

(Note, this is an automated transcription. Please forgive any errors.)

Ryan Fleming  00:04

Mr. Lee Hyder with us to talk more stuff on mistakes that clients make at times and how we let our emotions drive our actions. And in most cases, if we let our emotions drive our actions investing, it’s usually the exact wrong thing to do. Lee, what do you think about that? You know, I think emotions are a wonderful thing in a relationship, but you need to keep them out of your portfolio for sure.

 

Lee Hyder  00:31

I mean, it’s it’s common. I mean, you know, it’s hard not to be emotional about, you know, your financial future, and I get it, and I empathize with our clients. And that’s why we like you build our relationship on an educational platform, so that they really understand that quite often, investing is counterintuitive. The things that you think you should do, the things you think you should do, that you believe are based on logic and reasoning, really tend to be more emotional than, than anything else. So we got to do the best we can to keep our emotions away from our portfolio. Well, absolutely. And that’s why we study in behavioral finance. And it’s amazing, most of the data suggests that you’re just too emotionally attached to your money to make prudent financial decisions. And I think that’s one of the values that an advisor brings to the table is we can be very unemotional about things and in a downmarket rebalance on emotionally rebalance to help you with your long term portfolio and how you’re going to get to retirement safely. You know, one of the things that I noticed from time to time is somebody will come in my office and, you know, they seem a little frustrated and a little, you know, upset for different reasons, you know, as a prospect, you know, I don’t know them. And as they start sharing with me, you know, what’s been happening historically over their investing career, you know, quite often they say to me, you know, it seems like no matter where I go, no matter what advisor I work with, I end up with the same problem. And at that point, I will, you know, respectfully say to them that, you know, maybe the only common denominator in what’s going on in your life is really, you know, we need to examine you maybe not as much the portfolio or the advisor, so we’ve got to really do our best to get the client to understand that, even though they may say to themselves, and believe that they’re not making an emotional decision, you know, nine out of 10 times, their emotion tends to be their guiding light, which we try to, you know, get them to stay away from as much as possible, for surely and let me ask you this, what your experience has been I know, both of us are, we, we try to educate our clients, we talk about the things that are speculating and gambling, that being stock picking, market timing, track record investing. But what I found is those clients of mine, that over their career have been much more involved are talking about going to cash, you know, they’re on TV, watching all these things they want to stock pick, they want to get into silver or gold, I mean, whatever it is, the ones that are much more active, have significantly less money than those clients of mine that really don’t know what they’re doing. But they haven’t made any of those mistakes, and they’ve just left their 401k Doing what it was doing. And, and time and time again, I find that those clients that are very active and are studying and doing all this stuff all the time, have less money. And I find that to be very interesting, but it just goes to show you that not making mistakes is one of the biggest things out there. You know, it’s it’s funny, but you know, you know, I sometimes will say that, you know, a bad portfolio, left alone will maybe do better than a good portfolio in the hands of somebody who doesn’t know what they’re doing. And that really just goes to the point that you made, you know, that a lot of times these people that, you know, believe they know what they’re doing there, they’re tinkering, they’re there, they’re reading, they’re doing research, I mean, I mean, they’re spending so much time trying to figure out the portfolio. And instead of letting the portfolio assuming it’s a diversified, well built portfolio, let it do its thing and not make these, you know, knee jerk reactions along the way based upon what’s happening today in the market, or the world we live in. Well, and those are the exact same people that can’t sleep at night with their portfolio and because of that tinkering, those are the way those issues come up. And those are the way that they they make those big mistakes that they’ll never recover from. I deal with that a lot where they’ll read one article or the watch something on TV and I got a client that’s coming to me and saying I want all my money in cash. And I’m like, yeah, it’s the same thing as you know, you know, when you get those emails and the first thing they say is, what do you think? And it’s It then continues with, you know, I’ve been reading or a friend of mine says, and all of a sudden, you know, you’re going down that slippery slope, so you’ve got to kind of go back to I hate to say it, elementary school.

 

Lee Hyder  04:59

of investing and get them to really go back to you know why they made the decision to invest with you in the first place, you know, what their expectations are, and, you know, help them to really, you know, get in tune with, you know, their philosophy and doing the things that they are doing, which are clearly dysfunctional, are really not what their philosophy is built on. So we’ve just got to get them to embrace some very fundamental things about investing.

 

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Ryan Fleming  06:30

What would your advice be because unfortunately, all my clients that are pilots, they’re in the cockpit, they’re going to talk about family where they came from what they flew before the airline, were they in this service, and ultimately, especially on a longer flight, finances are going to come up a lot. And you talked about how you deal with some of your clients talking to their smart friend, well guess what? Every pilot out there is the most intelligent guy in the world. And so on a daily basis or, you know, at least while they’re at work, these clients are interacting with other pilots that have some miraculous biotech stock that they got, or whatever it might be. And having those conversations that’s, that’s, in my mind further poisoning that long term approach of being unemotional and letting your your plan work for you. Sure.

 

Lee Hyder  07:17

I mean, you know, anybody can get lucky at any one time, you know, what we’re trying to do is we’re not trying to pick the winners, we’re not trying to get lucky, you know, I know the way you build your portfolios, and the way we build our portfolios start fundamentally on academic research. And our research is not trendy. And what I mean by it’s not trendy, our research isn’t over the last 90 days or the last 18 months, I mean, the research that goes into the portfolios that we design, build, and manage, you know, got 20 years of academic research behind them. And sadly, when these people make these knee jerk decisions, I mean, barely is the ink dry on the paper, or barely had they deleted that email or newsletter they read, and they’re ready to make a monumental, dangerous shift in their portfolio. Yeah,

 

Ryan Fleming  08:07

it’s really hard to hard to see. And I’ve even had clients that, you know, went through my whole presentation, and they were so impressed and excited, ready to go. And then it’s like, a month later, they’re ready to go in a different direction. What just happened, you know,

 

Lee Hyder  08:22

what happened was, they saw the next shiny object, and they got distracted. And it’s our job. And I know you do a great, great deal of it, it’s our job to, you know, keep them focused, and really understanding, you know, there’s there’s not a lot that they need to focus on, you know, but quite often, you know, they’re focusing on the wrong things. So our job is to really get rid of the clutter, get them to understand what’s important in the day to day aspect of managing a portfolio, what things do you hear on TV, or read or just hear about in general, that really needs to be filtered out of your thought process?

 

Ryan Fleming  08:55

Yeah, I find it hard for me because I truly, truly care about all my clients. And when I’m watching somebody that’s going to leave or go down a path, it’s really hard for me to watch because I know that they’re going to hurt themselves. And, and I look at it, and we’ve talked about this many times that you can lead a horse to water, but you can’t make him drink. But it’s it’s a hard pill to swallow. No,

 

Lee Hyder  09:18

it’s It’s tough. I mean, look, you’ve been in the business a long time. I’ve been in the business for a long time. I mean, it is a challenge. You know, but all you can do is you know, educate your clients along the way. Love them, continue to reach out to them and just, you know, try to peel the onion, like when somebody leaves. You know, I always try to reach out and say, you know, where did where did we fail you because ultimately, you know, I take responsibility when somebody leaves somewhere along the line. I did not communicate something that was really important and they just missed it. And now somebody else kind of created a vacuum of information and kind of I hate to say snuck in there, you know, hit me It ties the client that what they can do is ultimately better than what we have done historically, for years and years. You know, so I always use these as a learning opportunity. And quite often, when I, you know, get a client to be totally honest with me, they can’t really articulate why they’re leaving in an intellectual fashion. And it tends to kind of be more emotion. And we know, we just try to get that off the table again, and just go back to the math. Yeah,

 

Ryan Fleming  10:27

absolutely. And in most cases, that emotional decision is normally going to lead you down a path, that’s probably not going to be beneficial for you. Yeah,

 

Lee Hyder  10:37

I mean, I mean, clients do a lot of dangerous things, I had a client that did not take my advice, and he took money out of his IRA to basically buy a house and you know, you know, as you know, you can take money out of an IRA. And if you put it back in within 60 days, you know, that’s basically a 60 day rollover, and there’s no tax and no penalty, you know, but he was doing it against my judgment. And I actually, you know, had him sign a letter that I’m not advising this because he was using it to buy a house, in the time when mortgages were taking forever. And I just said, if you don’t get that money back at that account, in 60 days, I said, you’re gonna have a problem. And, you know, thank God, I have a letter because he had a monumental problem, and he couldn’t get the mortgage placed, he couldn’t get the money back into the, you know, the IRA quick enough. And, you know, like I said, you can put things in writing that are in black and white, that it’s not in your best interest to do this. And clients still make very foolish decisions along the way.

 

Ryan Fleming  11:29

All the time, I just had a recent experience with that, and just not understanding the consequences if you can’t get it back in 60 days. And unfortunately, I think we’ve both watched that play out where, hey, this is what we’re going to my plan, and that plan doesn’t come to fruition, because of so many other variables that are out there. And that, and that’s why I try to tell my clients all the time, whether it’s their 401k, whether it’s their Roth IRA, their IRA, these are retirement accounts, you have earmarked that money for retirement, you knew when you put that money into that account, that you couldn’t touch it, you’re 59 and a half, you know, outside of certain circumstances. And that’s what that money is for. And so it’s a lot, a lot of case of robbing Peter to pay Paul. And, and so I try to advise my clients to not do that find other resources for whatever might be happening in day to day life. And that’s why it’s so important for people to also understand to invest outside of their 401 K, or IRA to have liquid security for when life does happen. Absolutely.

 

Lee Hyder  12:30

You know, one of the things I try to get, you know, new clients to really remember, you know, when they come into my office, and maybe they have a three or four or $500,000 401 k or IRA, you know, I really want them to just remember and embrace the fact that they didn’t earn that, you know, in 60 or 90 days, it took maybe 20 or 30 years to accumulate that. So it’s really unrealistic, just because they put those dollars into a new portfolio that in 60 or 90 days if the market happens to be going through a lot of turmoil and volatility, that all of a sudden, you know, it’s broken, it needs to be fixed. You know, why did I do this? You know, so it takes takes time, takes time, takes patience, it takes confidence in making good long term financial decisions and not knocking the train off the track before you get to the station.

 

Ryan Fleming  13:18

Absolutely. Lee, I just wanted to thank you for all your time today all your insights, talking about a lot of these issues that we deal with with clients mistakes that clients make how emotions drive our actions. I think your insight is very valuable for our listeners and happy 2020 for my friend,

 

Lee Hyder  13:35

absolutely looking for a great year for for myself for you and both of our clients. Stay well my friend. Take care