With the stockmarket at all-time highs, it’s normal for investors to wonder what kind of investing vehicles to choose right now. Stocks, bonds, even real estate, seem poised to crater as soon as we decide to buy. It’s probably the most common question a financial planner receives in times like this – “Where should I put my money?”
The media is filled with quick-fix advice on this all-important question. Peer-reviewed studies have repeatedly shown that the best long-term predictor of portfolio performance is the percentage we have in stocks vs. bonds. Way down the list in importance is the specific stocks and bonds (or mutual funds) selected. But, financial products, or investing vehicles, are what sell pop-up ads and keep eyeballs glued to CNBC and Bloomberg. So, it’s no wonder that this is a common question posed to financial planners.
The Question Before This Question
However, precisely because it is so important, it’s not a question that normally can be answered in an hour, or even two.
There is a reason that financial products are called “vehicles.” They get you where you want to go. However, without a destination, if you get behind the wheel of a real vehicle, turn on the ignition, put it in drive, and step on the gas, what happens? You might have some fun and adventure, but not a lot to show for the trip before you have to fill up again.
Sometimes I get in my car and forget to Google-Map my destination. Sometimes, I admit, I fool with it while I’m on the way there. Not safe. I know better. So, driving a vehicle without a destination can also be dangerous.
Unsatisfactory Destinations For Investing Vehicles
When investors are asked where they would like the vehicle to go, financial planners often hear places like the following:
- Rich-Land (By the way, most of us are there already. Spend three weeks in a developing country if you doubt this.)
- Maximum Growth and No Risk-Land
- 100% Guaranteed Income-Land
- Cake-and-Eat-It-Too-Land
- Whatever-the-Most-My-Portfolio-Can-Make-Me-Land
- Best-of-Everything-Land
These only exist in Fantasy-Land, and they are too vague for any kind of meaningful roadmap. If you head there anyway, expect to end up feeling exhausted, frustrated, and confused.
Satisfactory Destinations For Investing Vehicles
In comparison, what are some examples of satisfactory destinations? Try these:
- Have $X per year to support my basic living needs beginning in 20__
- Replace my car with one like it every 5 years until I can’t drive anymore
- Spend 3 weeks every year in Scotland beginning in 20__
- Put my kids through private school
- Provide sufficient support for the kids to attend a liberal arts college at age 18 if they want to
- Buy a mountain house by 20__
- Host my children and grandchildren on a cruise every summer beginning in 20__
- Build my own boat by 20__
- Hold a 50thanniversary party for my parents
- Open my beachside bistro by 20__
- Go to graduate school full-time in 20__
- Spend 20 hours per week volunteering at the homeless shelter beginning in 20__
Fortunately, I didn’t have to make these up. My clients provided them. Some of the destinations they knew off the top of their heads. Others took some time to dream, discuss, and realize.
Figuring out where they wanted to go was hard work. But once we knew the destinations, then what kind of investing vehicles, and whether we needed the equivalents of snow tires, a sunroof, hatchback, manual transmission, tinted windows, and halogen headlights all fell into place.
Isn’t that much better than walking up to a bunch of different cars and asking where they can take us? Answer: 400 miles on a full tank of gas. So…what?
Destination First; Vehicle Later
In short, figuring out the investing vehicles is not the hardest question. The more challenging ones are: Where do you want to go? What do you need, what do you want, what do you want to hedge against, and what do you wish for? Don’t worry, if the answer sounds like driving to Tahiti from Tampa, a good adviser will put the brakes on, and be your Google Map, before you step on the gas.
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