This is a common question I get from prospective clients in regards to investment selection. We might be at a social event, having an initial consultation or meeting after one of my educational events. They are interested in the “best investment” right now. What’s hot? What do you think about Amazon, Facebook or Shake Shack? I enjoy receiving this question. It is a very loaded question. I also enjoy talking about investments in general. Discussions and observations are healthy to gather perspective, challenge, change, refine or verify our ways of thinking and stay informed.
There are a lot of people and even financial professionals who will respond with an immediate recommendation to the question “What is the best investment right now?” They might be sharing an investment selection they find attractive personally or make money directly or indirectly promoting. I always find such responses interesting and or scary. They tend to be skin deep, non-personal, meaningless or reckless for the audience. They are making a lot of assumptions about their audience that may or may not be true or verifiable.
Our brains are programmed for survival and over the past million years safety in numbers has served us well. Today that same emotional need can be used against you. The average media engaged consumer is exposed to lot of commercials. Signs / billboards, TV, internet, Facebook, Google, phone calls, radio, print ads and direct mail; as a result, it is easy to have a preformed bias or way of thinking about something that you actually know nothing about. A preformed bias by way of marketing that could be detrimental to what you value and what you are looking to accomplish.
When we are not sure what to do it is easy for us to subscribe directly or indirectly to a form of “group think”[i] or a “herd mentality”[ii].
“The surest way to mediocrity is to follow the crowd.”
Giving a snap investment recommendation without a detailed understanding of who you are, where you are at financial, what you are looking to accomplish and an intimate understanding of your personal parameters is risky, careless and potentially expensive. It is similar to taking instructions and a prescription from a doctor who hasn’t reviewed your medical file or conducted an exam. They might not know you are allergic to penicillin, broke your foot three months ago, or have another prescription that could react poorly with their recommendation and be toxic or deadly.
How do you feel following the herd?
Personally, I’m leery about anyone who responds immediately with a recommendation. There are so many different factors and combinations of opportunities, challenges and constraints to consider. Without having a detailed understanding of where I want to go, what I need to do, what I want to do, my income, current assets, liabilities, investments, insurance, debt, tax situation, etc., how can they know what investment or financial decision is in my best interest?
So the next time someone tells you a product or strategy is horrible or amazing, don’t be too quick to assume their statement and claims are true for you. If you are interested, start asking lots of questions, and speak with an experienced and licensed investment professional.
Depending on your specific situation and goals, the best investment might be to pay down debt, fund a health savings account, and add a large cap value fund or emerging markets EFT to your portfolio. Purchase a bank CD, units in a master limited partnership, a municipal bond(s), disability, life, long term care insurance or an annuity. Investment choices like prescriptions from your doctor are tailored to address or serve specific problems, challenges, opportunities and situations. Don’t let great marketing convince you otherwise.
Kit Lancaster is a Financial Advisor and Certified Financial Planner Professional from Chicago, IL. He enjoys working with young professionals, families and business owners who have a desire to be financially successful and desire courses of action, education and perspective to aid them in accomplishing their financial goals. Kit holds regular educational events in Chicago and online.
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Kit is a Registered Representative and Investment Advisor Representative. TRK # 1808107 and dofu is 6/2017.