Dan and I joined this local professional organization. The Desert Business Association (DBA) serves 300 members who are mostly LGBT locally-owned businesses. Our book designer, Mark, and a fiduciary financial adviser, Bob, told us about the DBA mixers hosted by different members at their place of business. This gives members and chance to talk about what they do in a convivial atmosphere. We meet twice a month with always a good turnout. I get to talk about our business, Late Bloomer Wealth Press, and the two books we published (Dan cannot attend as frequently as me because he has a conflict with his 12-step meeting). Its been fun and beneficial meeting many business people across the valley.

Stock Broker Financial Adviser and an Insurance Agent

At the last mixer I had a conversation with an insurance agent and a broker from a local brokerage firm. Our mutual interest in personal finance sparked our conversations. The difference between the insurance agent and the broker is what I will elaborate and share my insights about the investing process as a Do It Yourself investor. My conversation with the insurance agent didn’t last long as he went straight into his patent and well-rehearsed sales pitch about protecting people from the stock market loses. I didn’t want to spoil my evening debating with an insurance agent.

The brokers conversation was interesting. Unlike the insurance agent, the broker and I were at least on the same page about investing in the stock and bond market. Insurance agents are typically from a wholly different world (as I have advocated for years, annuities should be illegal in the accumulation stage because of expenses and pathetic returns that don’t keep up for inflation. See a previous post about mixing insurance and investing).

The broker warned me that our bonds are going to take a hit when interest rates rise. I said that I already know that and took care in investing in short-term and intermediate term maturity dates in both government and corporate issued. She wasn’t convinced. So, I took it a step further. I said as calmly as possible, that Dan and I realize our portfolio is probably valued at $150,000 less than what it is right now because the bonds are priced at historic highs. She must have realized I was so wrong that she invited us to come to her office for a complimentary session and she will show us some “alternatives.” I was not interested in carrying on this conversation and I am not going to waste my time and hers for this complimentary session. I have read so much about the bond problem and the hit bonds will take when interest rates increase, I have come to the conclusion that whatever “alternatives” she offers comes with expenses and risk that both Dan and I will not accept. Sure, those alternatives will probably shielded us from the bond collapse but what are the OTHER risks with the alternatives?

A DIY Investor’s Insight

What risk would you rather take? The risk you don’t understand because somebody else recommended an investment, or the risk that you understand it was a DIYer’s choice of investment?

But there was a valuable insight that I gained as I drove home and continued thinking about this rare conversation with a broker. Rare because we keep our money away from the big banks and brokerage firms. We DIY investors have unique approaches to this complex topic of investing and personal finance. When I shared with her about the real value of our portfolio, that is a great example of how this (me) DIY thinks. To be fair to the broker’s work, NO FINANCIAL ADVISER could say to their clients that their portfolio is really less than what its worth now. Heck, they would lose their jobs faster than pilot Chuck Yeager breaking the sound barrier. All advisers work with others and if I were an adviser I would not say what I said to any of my clients either. But, I am not an adviser and my explanation that our portfolio is really worth less because of our bond’s inflated prices is how this DIY investor understands risk. This understanding is powerful as we can stay the course when our portfolio does take a hit when the bond interest rates finally rise.

By predicting ahead of time how our portfolio will decline when interest rates rise, Dan and I can accept a short term fall in our bond prices and in our portfolio. If we were go with the broker’s “alternatives,” who knows what kind of increased risk and increased associated fees and commissions we will have to take on and pay. The irony of this talk about raising bond prices is that the decrease is offset by the increase in the bond’s rate of return, which we all want. This long-term effect of bond investing is rarely discussed on investment forums or the financial media. Don’t we all want higher bond rates of return? Of course, we do.

Submit a Comment

Your email address will not be published. Required fields are marked *