Power Up Wealth podcast – Episode 84 – 7 Habits of Highly Effective Investors
James Derrick 0:00
Do your investment habits match the seven habits of highly effective investors? I’m James Derrick, and today, we will explore a list, and not your typical list, of what it takes to be a successful investor with our expert and guest, Jordan Hadfield.
Sharla Jessop 0:26
Welcome to the SFS Power Up Wealth podcast, where we provide impactful insight and expert opinions on timeless financial principles and timely investment topics, preparing you to make smarter decisions with your money.
James Derrick 0:50
Jordan, thank you for joining me today.
Jordan Hadfield 0:51
I’m glad to be here, James. Thanks for having me.
James Derrick 0:56
Jordan Hadfield is a private wealth consultant at Smedley Financial Services, and he is a Certified Financial Planner. Recently, Jordan, you wrote about the seven habits of highly effective investors. And I have to say this is not your typical list. The first one. Let’s dive right into it. If you don’t mind, don’t get caught up in current events. I would have thought you might say the opposite. Know what’s going on?
Jordan Hadfield 1:17
Yeah, exactly. Oftentimes, when it comes to investing, the best habits are typically not intuitive. Don’t getting caught up in current events, I think, is very important if we’re going to be successful investors, and that’s because we are inundated with bad news as we log into the internet or turn on our TVs and watch the news, there’s always something that can catch our attention that can cause fear, and fear is counterproductive to successful investing. So if we’re focusing on these current events and these things that could possibly be scary, typically, what that leads and investors do is cut risk, be more safe, and give up return potential.
James Derrick 1:56
Would you say, out of curiosity, that the opposite is true then as well, if I’m in an echo chamber of positive news, am I also likely to make a mistake?
Jordan Hadfield 2:05
Great question. So keep in mind, we’re talking about long-term investors. We need to emphasize that this is not for a short-term investor. This list is created for long-term investors. And so your question is, could it be harmful if we get caught up in a place of positive news? Am I understanding you right?
James Derrick 2:20
Yeah.
Jordan Hadfield 2:21
I would say no, for a long-term investor, we should be positive. We should have an optimistic outlook on markets long-term all the time. As we look back through history, markets have always gone through rough patches. There’s been events, politically, economically, socially, environmentally, that has been scary, right, or been difficult for investors to to invest through. But long-term, the market has always overcome those. The markets have always turned positive, and investors have always been rewarded for hanging on.
James Derrick 2:53
So this leads perfectly into your second point, which is embrace market risk. Now I just want to point out the word risk is a four letter word.
Jordan Hadfield 3:01
Yes.
James Derrick 3:02
But not on your list. So talk to us about how you’re viewing risk.
Jordan Hadfield 3:06
There’s a number of different ways to look at risk and how it impacts our investments in our portfolios. One thing that I like to remind investors is gains that we earn from investing, any appreciation that we receive from investing should be viewed as compensation for the risks that we take. So there is no free lunch. When we invest, we take on a certain amount of risk, and because we’re willing to take on that risk, we should be rewarded for it. Long-term, this greatly works out in the favor of the investor. Short-term risk becomes a lot more dangerous. Okay, so if we’re going to talk Las Vegas, for example, let’s say we go down to Vegas and we throw $10 on black. We’re playing roulette, we throw $10 on black. James, what do you think the chances are that I’ll hit black and double my money? One spin.
James Derrick 3:06
Well, you’re talking to the wrong guy. I’m guessing it’s around 50%.
Jordan Hadfield 3:35
It’s 48% because there’s two green squares that tilt everything into the casinos favor. So it’s about 48%. 100 squares, two green squares, which means there’s 98 squares, and half of those are black. 48% so not very good. What are the chances that if I invest that $10 today in the stock market, that it will be positive tomorrow, within a 24 hour period?
James Derrick 4:16
All right, I don’t have the math in front of me. I’ve looked at this before, though, and I think it’s a lot closer to 50% than you think it might be like 51, but I don’t even know.
Jordan Hadfield 4:26
No, you’re right. It’s just over 50% You’re right. So better than Vegas, but not much. I mean, we’re still if I’m gonna throw money in a stock and pull it out the next day, I’m gambling at this point, which is why day traders are often considered to be gambling in the market. But if we extend that from a 24 hour period to a 15 year period, now, what do you think the chances are of making money in the market?
James Derrick 4:50
Yeah I mean this, this works because so many people are working hard to innovate and to create in this country and in this world. And so the longer the time horizon is, the more likely these people are going to find success, and their success is your success as an investor. So I’m going to say that historically speaking, your chances of positive results after 15 years is somewhere in the realm of 100%.
Jordan Hadfield 5:17
It is very, very close to 100%.
James Derrick 5:19
Not that there’s a guarantee.
Jordan Hadfield 5:20
Exactly.
James Derrick 5:21
Historically speaking.
Jordan Hadfield 5:22
It is very close to 100%. Yeah, that’s right. And so when we look at risk, we have to take into account our time horizon. And if we’ve got a long time horizon, we shouldn’t be focused on short-term risk.
James Derrick 5:33
Excellent. So this leads into number three. Don’t panic. Now, we all know that, though, right? So why does it belong on this list?
Jordan Hadfield 5:41
Well, we also know that an hour of exercise a day is very good, and that eating healthy is good, but we don’t often do it. We know that it’s important not to panic when we see volatility in the, in the market, just like we know eating too much McDonald’s is bad for us. But when that moment hits, man, a Big Mac might sound really good. You know, when that moment hits, maybe I know I shouldn’t panic, but implementing what we should do and what we know is very difficult, and the data shows that most investors, the vast majority of investors, do panic, even though they know they’re not supposed to.
James Derrick 6:18
Yeah, I think part of this plays into the fact that doing something feels good.
Jordan Hadfield 6:23
Exactly right. We all know the saying, buy low, sell high. It’s amazing how often investors do the exact opposite, like they all know the rule, buy low, sell high, but they are often doing the exact opposite. And you’re right. Maybe the fact that just doing something feels good when markets get volatile, is what leads investors to making the wrong decision at the wrong time.
James Derrick 6:45
Fascinating. Okay, Fourth on the list, prioritize investing. What do you mean by that?
Jordan Hadfield 6:51
I had a client who was talking to me fairly recently, and she was talking to her granddaughter about money, and she said something to her granddaughter that I thought was just so brilliant. And that is she said to her granddaughter, when you go outside, when you walk out your front door, everyone is trying to get your money. I don’t, I forget how old the granddaughter was, but she was younger, and she had, let’s say she had $5 in her pocket. When you step outside your front door, everyone is going to try and convince you to give them your $5. They’ll be marketing to you here and marketing to there. There will be this shiny object that catches your attention. There’ll be this service that sounds good. There’s the ice cream truck drive by with its sirens blare and saying, give me your money. And this client of mine was so intelligent, she said to her granddaughter, your job is to make sure that $5 stays in your pocket.
James Derrick 7:45
I love that. You know, we used to say it around here, like, pay yourself first. But I like this idea of it’s kind of you versus them, because I feel like that gives you a feeling of what it’s really like out there.
Jordan Hadfield 8:00
To that ice cream salesman, the $5 you have is more valuable than the ice cream they have, and they want to swap right? And now, of course, anyone can take this too far, like there’s nothing wrong with spending money on the bright and shiny things of the world that are fun. But the point is, if we’re constantly putting the bright and shiny objects above investing. If we value them more than investing, we are never going to be a successful investor. When we have extra money, we should be excited about investing it more than we’re excited on spending it on the bright and shiny object. And if we do that, if we have that mentality of there is something valuable and exciting about putting my money to work for me, you will be successful as an investor, but if we’re constantly valuing the material things of the world and spending our money there, we won’t be successful. You know, it’s funny, I talk to people all the time about money, and the subject of winning the lottery comes up more often than you may think, right? And if you ask somebody, and you can try this, ask somebody, if you won the lottery, you know, if you won ten million dollars in the lottery, what would you do with it? And 99 times out of 100 when you ask somebody this question, they start listing all the things they would buy. In other words, people don’t want to be millionaires. People want to spend a million dollars, and these are two very, very different things. And if you want to just spend a million dollars, you’re never going to have a million dollars. If you want to be a millionaire, you’re not going to spend it, you’re going to save it, you’re going to invest it. That’s the key difference here that I’m I’m trying to point to.
James Derrick 9:37
Well said next we have stick to a financial plan. When do people need a financial plan? How common are they really?
Jordan Hadfield 9:46
I would say anyone making an income needs a financial plan.
James Derrick 9:49
And do they? Do most people have one?
Jordan Hadfield 9:51
The vast majority of people do not have a financial plan, though.
James Derrick 9:53
And maybe then, could you briefly explain what goes into a financial plan?
Jordan Hadfield 9:59
This gets really complicated, but the idea is, if we have money coming in, we want to put it to work for us so that we can build our net worth. How do we do that? How do I cover today’s liabilities? How do I spend the money to live the lifestyle I want to live? Because there’s importance to that too. We don’t want to just invest and save every penny we earn. Living life is important. How do I do that? How do I put my money to work for me? Where do I put it to work for me? More importantly, this is going to the next step. What happens when there’s an emergency? Where do I pull my money from? Next step after that? Okay, how do I afford these goals that I want to have, that I can’t afford today, that I want tomorrow, be it a new home, be it a secondary home, a vacation home somewhere, be it an extravagant vacation in Europe, be it a boat, be it a whatever it is that you want to spend your money on. How do I best save for that? At the very basic level this is what a financial plan is. And people don’t have this in place. It’s shocking to me how many people don’t have a plan in place. And if you fail to plan, you plan to fail. I mean, everyone’s heard this, but it is so true when it comes to investing. If you want to be a successful investor, it is important that we have a plan for investing.
James Derrick 11:13
Next up we have earn interest, don’t pay it. This is particularly interesting because interest rates have changed a lot. So where we were 10 years ago is very different than where we are now, and I have a feeling like where we are now might persist for the next 10 years. Talk about that for a moment, would you?
Jordan Hadfield 11:32
Real quick and easy, those who understand interest earn it and those who don’t, pay it. If you look at the credit card companies, multi billion dollar companies. I mean, they are making so much money in interest, and who is paying it?
James Derrick 11:46
Consumers.
Jordan Hadfield 11:46
Consumers! Right? Because they don’t understand that the interest that the credit card companies are making could be interest that they’re making if they structured their budgets differently and if they had a financial plan. But instead they are literally every single month that they carry a balance on their credit cards, are shoveling 1000s and 1000s and 1000s and 1000s of dollars cumulatively to these credit card companies daily. It’s crazy.
James Derrick 12:16
Yeah, I’ve seen that some of the default rates are going up, and it seemed a little strange to me that some of these banks, all of these banks, are still issuing credit cards to people, and it got me thinking they must be, despite the fact that those defaults are going up, they must be making a lot of money, otherwise they’d shut them down.
Jordan Hadfield 12:35
Yeah, absolutely, they’re making a tremendous amount of money, and it’s from people who are overspending they carry balance on their credit cards. Mainly, I mean, there’s other ways that you can spend money on interest. Any personal loans, credit cards are the worst. But any personal loans, any debt that isn’t building your net worth, isn’t good debt. Now there is some debt that is good debt. There is debt out there that actually builds our net worth, but most consumer debt doesn’t it’s bad debt, and we want to avoid bad debt.
James Derrick 13:06
Finally, we get to the last point. Seek professional help. Here I wondered if you could elaborate on when do people need professional help? How do you know?
Jordan Hadfield 13:15
That’s a great question, James, and the truth is, we could all benefit from financial, professional financial advice. Oftentimes, people go to the water cooler at work to try and get some financial advice. They turn to their friends, they turn to the internet. And the truth is, if I’ve got a medical issue and I go to the internet, I can find the correct answer to my situation. But there is a tremendous amount of false information out there, because the medical field isn’t so simple. I could have one whatever reaction, something that could be caused by a multitude of different things. And so to go to the internet and say, this works for me. This is, this is what my problem is. Sometimes we get lucky and we’re right, but oftentimes we’re wrong. And if it’s serious, we absolutely shouldn’t be turning to the internet for medical advice. We should be turning to a medical professional. It’s not different in the financial field. However, most people think it’s different. Most people think they’re investment professionals who aren’t in the industry. They dabble a little bit investing. They bought some mutual funds. They have a basic idea of what the S&P 500 is and what it does historically from a return perspective, but they don’t understand the intricacies of asset allocation or risk management or any of these type of things when it comes to investing, and so we need to be careful about where we get our financial advice from, and seeking a professional is always advantageous.
James Derrick 13:47
One final question, Jordan, beyond investment advice, what other services, what other value do financial professionals like yourself offer?
Jordan Hadfield 15:03
If it deals with money, then we advise on it. This is a great point, James, it isn’t always about investing. It could be about tax planning and saving money through taxes. You know, tax evasion is illegal, but tax avoidance is wisdom. That is an area that we provide a tremendous amount of benefit to our clients outside of investing. It could be risk management. How much risk should we be taking? It could be through budgeting. It could be through insurance. How much insurance do we need? Do we need any at all? Several different avenues of financial planning that can tie in to a client’s financial plan that doesn’t involve exactly investment management or investment allocation. So there’s a number of different services that we provide for our clients outside of that, which is why, even if you’re in a point where maybe you’re not quite ready to invest, you could still benefit from speaking with a financial professional.
James Derrick 15:59
I imagine a lot of people come in for one purpose, and then they find that there is value added somewhere else.
Jordan Hadfield 16:08
Yeah, and the greater the net worth, the more services are, are needed. You know? We get into heritage planning, we get into estate planning, we get into distribution planning. And there’s, there’s a lot, a lot of in depth planning. And the bigger the estate gets, the net worth gets, the more detailed, the more intricate, the more confusing some of this planning can be.
James Derrick 16:29
All topics we want to dive into in the future in this podcast.
Jordan Hadfield 16:32
I look forward to it, yeah.
James Derrick 16:33
Jordan, thank you for coming in to talk about the seven habits of highly effective investors. I really appreciate your time.
Jordan Hadfield 16:38
Thanks for having me.
Shane Thomas 16:44
Thank you for joining the Power Up Wealth podcast. Smedley Financial is located at 102 S 200 E Ste 100 in Salt Lake City, UT 84111. Call us today at 800-748-4788. You can also find us on the web at Smedleyfinancial.com, Facebook, Instagram, Twitter, and LinkedIn. The views expressed are Smedley Financials and should not be construed directly or indirectly as an offer to buy or sell any securities or services mentioned herein. Investing is subject to risks, including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should only be relied upon when coordinated with individual professional advice. Securities offered through Osaic Wealth, Inc., member FINRA/SIPC. Investment advisory services offered through Smedley Financial Services, Inc.® Osaic Wealth is separately owned, and other entities and/or marketing names, products, or services referenced here are independent of Osaic Wealth.
