When The Coach Is Most Valuable To The Investor

The Coach’s Real Value Is Making Sure We Don’t Get What We Want

                                                                        By: Brendan Magee

People often hire coaches. Most people would think the job of a coach is to make sure we get the things we really want. However, a closer look at the real value of a coach reveals their job is to make sure we don’t do or get the things we really want. I know this sounds a little crazy, but bear with me.

If dieting, the coach’s real job is to make sure you don’t eat the pies and the cakes. The coach makes certain you don’t stay in bed on those cold mornings when you are supposed to be at the gym. The coach makes sure you’ve made 50 sales calls that week rather than 35. We all know how adept we are in coming up with excuses (ones that seem very legit) that give ourselves permission to break the promises we’ve made to ourselves. We easily talk our way into behaviors and situations that sabotage our health, wealth, and well being every day. It’s the commitment our coaches make to us that acts as a barrier between the things we truly want and our humanity getting in the way.

I was reminded of this phenomenon in a recent conversation I had with a client. He is a really nice guy with a successful business that has endured in good times and bad. When this country speaks of entrepreneurs being the back bone of this country they are referring to my client.

A year ago he and his wife, I am grateful to say, gave me the company’s 401k plan business.  The other day he let me know that he did not like how I,nor, any other financial professional was getting paid. He said there was a lack of accountability in that I get paid whether his account went up or down. He had a real problem with that.

Through a phone call and a few e-mails I conveyed to him that I felt his pain and tried to make him feel better about how his 401k plan was being invested.  I also tried to explain that if the compensation arrangement he wanted (he pays a fee only when his portfolio goes up and nothing if it should lose money) could be arranged, it mean that his portfolio would go down in value, and as his coach I didn’t want that to happen.  Let me explain..

To the investor this sounds like the ideal situation, but let me explain the ways this not losing money could be accomplished. One, take all the money and dump it into U.S. Treasury Bills. This is an investment backed by the full faith and credit of the United States Government. Money invested here will never go below its principal. The investor has an ironclad agreement that their principal will be returned with interest at the end of the investment term. If that was all an investor wanted, it’s a perfect match. He’d always make a few dollars and feel better about paying his advisory fees.

Unfortunately, most investors want a little more for their money. They want their money to retain its value. Unfortunately, T-Bills do not do this job very well. From 1973 thru 2009 the rate of inflation in this country has gone up 4.5% every year, and the rate of return on T-Bills is only 5.76%. In T-Bills my money is not going to last very long because its purchasing power hasn’t outperformed inflation. Stocks have, but to outpace inflation I am going to endure times of negative returns. History shows that. It also shows if I try to avoid them I am sunk as I’ll explain below.

The other way we could try and avoid losses is to time the market. We could try figure out when stocks will be up and get in before the upswing and try and figure out when it’s going to go down and get out before it dips. The problem with that is we’re going to have to be able to predict the future at least two times (When is the market going up and when is it going down). Studies show this is a losing game to play. Between January 1, 1990 and December 31^st, 2009 there were 5,040 trading days. If I missed just the 20 best trading days in that time frame, any money I had in U.S. Large Co would have returned just 2.12% annually. This is as opposed to just having left the money in there, and lived thru any downturns which would have resulted in an 8.21% annualized return. In plain English market timing wouldn’t make any body happy in the long run.  

So where does this leave us? This is gut check time for the coach. The football coach could give in and let the team slide on some the drills it needs to do. A nutritionist could look the other way and let the patient load up on junk food. The trainer could tell the jogger to knock off after having run two of the four miles required. The investor coach could move the portfolio to fixed investments and maybe never again hear a complaint from a client about losses or fees. In the moment everyone will be happy. In doing so, the coach just sold out his client. They traded in theirs and their client’s integrity for a paycheck.

A true coach would never do that. They tell you not only what you want to hear,  more importantly they tell you what you need to hear even if it means you’ll become upset with them or even fire them. They make certain your words and actions are in sync with one another no matter what the situation is. This is never easy for the investor or client because, when you are at the point of upset, frustration, ready to quit, looks like all hope is lost that is when your coach is the most valuable to you, not when you are on the brink of success. Success comes from being to true to your word and there is no amount of money that can pay that bill. You both pay that with your ability to endure and stay disciplined.

 Brendan Magee is the founder and president of Inevitable Wealth Coaching in Drexel Hill, Pa. With questions, comments, or suggestions call 610-446-4322 or e-mail brendan@coachgee.com. You can alos follow him on Facebook (Brendan Magee-Investor Coach) Tune into his Investor Coach's Show on am1340 What radio.