What do financial columnists, ancient Greek dramatists and modern psychologists have in common? Each deal with “Hubris” – excessive pride, arrogance and or overconfidence.
The plot lines of many Greek plays rely on hubris. Hubris followed by nemesis. Punishment from the gods, being the common form.
Psychologists deal regularly with various expressions of hubris. From narcissism to the Icarus complex. From ascensionism to perpetual adolesence.
Financial columnists are more interesting still. Many, while perhaps not subject to hubris in themselves, are carriers. They present ideas that are so oversimplified that they are meaningless, but they convince the unaware that the implied behaviour is possible. For example, if someone pays a 2% fee to a financial advisor, over the course of 30 years they will have given away X% of their potential accumulation. All true and a large share, too.
That idea seeds hubris in readers. People assume that if they lose 30% of their money because of the fees, then they can keep that money if they use the do-it-yourself approach. Do-it-yourself can work, but like Icarus you must know the conditions under which it will work and avoid exceeding those limits.
Here is the short story. If you want to do it yourself, you must somehow replace what the advisor did before you decided they were too costly.
The easier and columnist implied option is for you to decide that what advisors do is valueless. Hubris squared. New word to apply “floccinaucinihilipilification” – The act or habit of describing or regarding something as unimportant, of having no value or being worthless.
To set out to do something like retirement planning on your own assumes that you think you know all you need to know to be successful. Unless you know what the advisor did and have the time and skill to replace it, do-it-yourself is Hubris. Overconfidence, excessive pride, arrogance.
The ancient Greek gods may be unconcerned about what goes on outside Greece, and so their retributive justice may be avoided. Nemesis however is a natural construct. Even though the gods may not deliver it, punishment will nonetheless appear.
Overconfidence in one’s ability is financially lethal yet you see it every day. People try things where they have not the slightest reasonable expectation of success. Everyone who can barbecue a hamburger can run a restaurant. Everyone who owns a hammer and saw is a carpenter. Every tradesman can be a contractor. Every line worker can be an executive. Everyone with money can be a financial advisor.
Before setting out on the road to easy wealth, find out what financial advisors actually do. You can then make an objective assessment of the costs and benefits. To assume you know everything, have access to everything you will need, and can carry it all out with diligence and without emotion, is hubris.
Be sure to include a defence against nemesis in your plan.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.