How many times have you rushed to the grocery store without a list?
There you are, aimlessly wandering the aisle, tossing potato chips and cookies into your cart.
You spent too much. You bought nothing with any nutritional value. And you couldn’t assemble a balanced meal if your life depended on it.
Now, think about the times you went to the store with a recipe. Before you left the house, you carefully wrote down the items you wanted. You knew the perfect cut of meat, the exact amount of vegetables, and all of the perfect herbs and spices.
That’s the difference between building a financial plan and just putting together an investment portfolio. If you don’t carefully build a list first, you are just throwing cookies and chips in a cart because they look good not because they properly fit the recipe.
But even with that analogy, I have clients that come to me all the time that tell me that they “just want to invest.”
But “investing” and “investing properly towards a goal” are as different as night and day. To invest properly, you need to understand risk tolerance. You need to understand time horizons. You need to understand everything in the context of all of your investments.
Anyone can go in and create an online investment account and buy something. But it is important to ask yourself, “What am I buying this for? What is the intention of this investment?”
Just like at the grocery store, if you go without a recipe and without a list, you never come home with the right ingredients. Your portfolio works the same way.
Here’s some things to keep in mind, and some good questions to ask, as you craft your investment grocery list:
- What is your time horizon?
- How will it generate income?
- What are the expenses?
- How does this investment work with my life goals?
- Does it fit properly with my buckets?
- What is my risk tolerance?
The truth is, a lot of clients still view financial advisors as investment advisors. I know that I can add the most value in helping my clients to establish (and stick to) a financial plan. When I meet a new client I begin my gathering information, developing a plan and then (and only then) developing an investment strategy.
Whether it is because it is easy or because it is flashy, I know that a lot of advisors at other firms lead with investments. But the secret to a strong long-term relationship is planning.
Investing is junk food, but planning is nutrition.
Like any good diet, financial planning is a process, and it is a hard work. But done right, it can yield long-term results.
Stephen Carrigg is the Director of Investment Analysis, Private Wealth Advisor at Integrated Partners. Send him an email at firstname.lastname@example.org