Earlier this year, I started a series of articles called “Questions You Were Afraid to Ask.” Each month, we look at a common question that many investors have but feel uncomfortable asking. Because when it comes to investing, the only bad question is the one left unasked!
Over the last few months, we’ve covered a variety of topics, including:
How the Dow Jones, S&P 500, and NASDAQ indices work and which companies they include.
How the values of these indices are calculated.
How stocks actually work, and how they differ from bonds.
How investment funds work, including the differences between passive and active funds.
The pros and cons of mutual funds, exchange-traded funds, and hedge funds.
As you can see, when it comes to investing, there’s a lot to know, a lot to consider, and a lot to choose from. And while choice is always a good thing, many investors often come to me with their heads spinning because they’re not sure where to start, what to do, or which option to choose.
They all come with some variation of the same question. The question I’m going to answer right now.
How do I know which investment options are right for my clients?
When it comes to this question, I have good news and bad news.
The bad news is that there is no one-size-fits-all answer.
The good news is that there is no one-size-fits-all answer.
Yes, you read that right.
To illustrate what I mean, think about your clothing for a moment. Do you buy one-size-fits-all attire? Of course not – and there’s a reason for that. “One-size-fits-all” wouldn’t look very good. It wouldn’t feel very good. And it simply wouldn’t work for every person and every lifestyle.
In life, we have a variety of different clothes we can choose from. We make those choices based on several factors. Climate: pants or shorts. Employment: jeans or slacks. Occasion: a day at the beach or a day at a wedding. Personality: colorful vs dark, brazen vs muted. Figure: from extra-small to extra-large. You choose your clothes – and your style – based on what’s right for you. Based on your wants, your needs, your nature. Investing, believe it or not, is much the same. There is no one-size-fits-all. No single “best” option. Only the best for your client, based on their wants, their needs, their nature.
This might seem like a no-brainer, but it’s critical all the same. That’s because you will often hear the media say otherwise. You will hear people claim that the Dow is more important than the S&P (or vice versa). That stocks are better than bonds, or bonds are safer than stocks. That passive is better than active (or vice versa), or that ETFs are always better than mutual funds (or vice versa).
As we’ve seen, the truth just isn’t that simple.
In these articles, I’ve answered six questions many investors are afraid to ask. Now, I have six more for you and your clients to consider. Six questions you must not be afraid to ask. Questions only they can answer.
Those questions are as follows: Who, What, When, Where, Why, and How.
Who am I? Are you cautious by nature or a risk-taker? Are you a family-oriented person, or more of a lone wolf? An adventurer or a caretaker? Someone with a few simple wants, or big, bold dreams? Or – as many people tend to be – are you a mixture of all these things?
What kind of lifestyle do I want? Simple or extravagant? Always trying new things, or staying in your comfort zone? One focused on work and personal accomplishment, or one focused on family and community? Or again – and I can’t stress this too much – a mixture of these things, depending on what stage you’re at in life?
When will I most need money? Do you need it soon because you’re buying a new home or starting a new business? Or do you need it later when you’re about to retire?
Where do I see myself in ten years? Or twenty? Life is all about change and growth. That means you need to ensure you’re investing for long-term growth to reach your long-term goals.
Why do I need to invest? To help send your kids to college? To retire? To see the world? To give to charitable causes? To feel like you always have a safety net?
How will I pay for retirement? This is key. Because, regardless of your other goals, there’s probably going to come a time when you want to stop working. But you can’t just pick a day to not show up at work. Retirement creates a massive lifestyle change, one that will be quite upsetting to your finances if you don’t prepare for it.
It’s these questions that should determine the right investment options for your clients. The types of assets they invest in. How much risk they take on. Whether their portfolio is simple or complex. Active versus passive. You get the idea.
So, here’s my suggestion: Take some time to think about these questions. Then, communicate your answers with a professional you trust. Together the two of you can create an investment plan that’s as specific to you as the clothes you wear. A plan designed to get you where you want to be.
Most of all, I hope you can use this information as a springboard to ask more questions down the road. After all…
When it comes to investing, the only bad question is the one left unasked!
Comments