“Whoever manages my money better beat the S&P 500! What’s your strategy? What’s your performance? Jim Cramer says buy Lehman Brothers. What do you think of Lehman Brothers? Should I buy gold? ”
A prospective client asked these questions during a meeting last year. When I attempted to discuss goals, he directly focused on investments and described the classic investors mistakes he made over the last decade including:
- Buying technology and growth stocks in 1999 and holding to the end of 2002 realizing a huge loss.
- Buying bonds in 2003, just in time for the bond market to decline. (Yes, bonds can and do decline.)
- Buying a property to fix up and flip in 2006. Still holds the property at a loss and cannot sell as the mortgage is higher than the home’s value.
He planned to retire in a few years and wanted advice but didn’t want to talk about goals. He only wanted to focus on investments and strategy.
After a decade of making mistakes, this investor is still looking for the secret to maximize investment returns. But the reality is this: The more you search for investing secrets, the worse your returns will be!
Now, suppose in 1999 he:
- Identified his goals
- Designed a plan with a real financial planner focused on these goals
- Understood the portfolio was a tool, a means to an end.
First, a financial planner would have helped avoid the classic investor mistakes he made.
Second, a financial planner would have designed a diversified portfolio based on his goals. A portfolio designed with an end in mind!
Last, a financial planner would continually monitor the plan, adjusting goals and/or the portfolio allocation based on the plan. In other words, benchmarking the portfolio against the plan, not an arbitrary index.
The time has come to stop searching for the next “hot” investment or guru who can provide market beating returns.
It’s time to define life goals and design a plan with a financial planner toward achieving these goals.
It’s time to meet with a financial planner on a regular basis to benchmark your portfolio against the plan and adjust as required.
It’s time to understand a portfolio is not the end. A portfolio is a means to an end.
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