What do you think about this stock? How about that sector? He essentially wanted my opinion on what may well have been his entire portfolio. I was momentarily at a loss for words.
Keep in mind that he was a complete stranger. I didn’t know anything about him, so I respectfully declined with a good-natured smile.
I was actually familiar with all the investments he mentioned, but I wasn’t familiar with the most important things of all. Who was he? What were his goals? His aspirations?
When I discuss investing, I believe it’s important to know a person’s background, including marital status, health, family situation, income, risk tolerance and more. Knowing someone’s situation is critical.
For example, are there any short-term needs such as a down payment on a house? If so, perhaps the money should be sitting safely in the bank rather than in an investment whose value could tumble in the blink of an eye.
Maybe there are mid-range needs like funding a child’s education. If so, those dollars might best be put into an education fund commonly called a 529 program.
Then there’s the universal need: Retirement. I have to know if someone is participating in an employee retirement plan. If not, they may be missing out on a significant employer match.
More often than not, I’m apprehensive when people wear their investments on their sleeves. Some stocks may carry some social status, but there’s a difference if you bought XYZ stock at $50 per share as opposed to $10 per share. Especially if the current share price is $40.
In other words, nobody should brag about any particular investment, especially in this rapidly changing world. If you’re going to invest, I suggest you have a plan, a financial blueprint.
Our local auto companies don’t just turn on the assembly line and hope they end up with a complete vehicle. They follow a blueprint. Without a financial blueprint, an investor could end up with a dozen or so speculative stocks and not have a clue about the risk he or she is taking.
There’s a significant difference between speculating and investing. Speculators tend to be frequent traders, while investors think in longer time horizons. In this COVID-19 environment, with so many working at home in front of their computers, I think the line between speculating and investing is becoming a bit blurred. I believe many impulsive trades are being made.
As an advisor, when somebody asks me what I think about their investments, I have a laundry list of questions I need answered before I can offer up any opinions or suggestions. If our paths should ever cross, I believe I’m a friendly, approachable person capable of carrying on an intelligent conversation.
The only thing I ask if you really want my opinion regarding your investments is that we schedule a meeting. Because in my humble opinion, off-the-cuff suggestions more often than not miss the target and can produce more questions than answers. Any questions?