With the stockmarket falling, 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. Research has shown that the best long-term predictor of investing success is the percentage we have in stocks vs. bonds. Further 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 our screens. So, it’s no wonder that this is a common question.
The Question Before The Question
However, precisely because it is so important, it’s not a question that can normally 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. Consider – if you get behind the wheel of a real vehicle, turn on the ignition, put it in drive, and step on the gas without a destination in mind, 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.
When investors are asked where they would like the vehicle to go, financial planners often hear something like the following:
- Rich-Land (News flash: most of us are there already.)
- Growth-With-No-Risk Land
- 100%-Guaranteed-Income Land
- Cake-and-Eat-It-Too Land
- Whatever-the-Most-My-Portfolio-Can-Make-Me Land
These kinds of wild places only exist in Financial-Fantasy-Land. They are too vague for any kind of meaningful map. Having one of these as your sole destination is a recipe for exhaustion and frustration. No vehicle will get you there, no matter what you might hear or read.
Fun and Fulfilling Destinations
In comparison, what are some examples of fun and fulfilling 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 50th anniversary party for my parents
- Open a beachside bistro by 20__
- Go to graduate school full-time in 20__
- Spend 20 hours per week volunteering at the shelter beginning in 20__
These are real-life goals from real-life people with real achievability. Some of the destinations they knew off the top of their heads. Others took some time to dream, discuss, and discover.
In some cases, that discovery was hard work. But once we knew the destination, then we knew what kind of investing vehicles were necessary and appropriate. To carry the analogy further, it was obvious whether we needed snow tires, a sunroof, hatchback, manual transmission, tinted windows, or halogen headlights. Investing decisions all fell into place.
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?