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Sunday, August 22, 2010

Is This a Good Investment?

When people learn that I am a financial advisor, they often ask me if a particular stock or mutual fund is a good investment. My answer is always "it depends." I answer this way for two reasons:

  • The better question is not whether fund XYZ is a good investment, but rather whether fund XYZ is a good fit with this person's overall financial and investment strategy. Knowing nothing about their financial situation there is no way to give them the good answer they deserve.

  • From a selfish perspective, I don't want to assume the liability of providing off the cuff financial advice. I've read about several financial advisors who have been sued for providing free advice of this type by investors who followed it and subsequently lost money.

Over the years I have encountered many folks who have an array of various stocks, mutual funds, and other investments scattered over a variety of accounts. There is no overall plan for their portfolio. Rather they have read about this fund, a friend talked up that stock, etc. They have a collection of investments or what I call "financial clutter." The investments are not in any way aligned with their financial goals or any sort of overall financial plan. There is often a high degree of overlap among holdings and not much real diversification. This can place their portfolio at significant risk during a market downturn.

Is this a good investment? A simple question, maybe. The answer is not simple, however.

If you would like some help "decluttering" your financial situation, feel free to contact me.

 
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2 comments:

  1. AnonymousAugust 23, 2010 at 9:10 AM

    Great post, Roger. I've also encountered many over the years that have assembled a collection of investments that were sold to them without regard for the person's needs or in context of their goals and objectives.

    It's a sad commentary about the majority of "professionals" in our industry when they're more concerned about their sales numbers than the clients they're selling this crap to.

    Financial decluttering is an important first step on the road to aligning one's money with their hopes and dreams for the future

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  2. Roger Wohlner, CFP®August 23, 2010 at 9:21 AM

    Thanks for the comment Russ. This is both one of the great frustrations of our profession, but thankfully one of the great opportunities to really help clients improve their financial situation.

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