Money Talks, So Should You

Q&A: What questions should I ask when thinking about potential investments?

Robert Schmansky
by Robert Schmansky, The Garrett Network (@clearfa)

It is always helpful to start with why you are considering an investment:  

What role does it play, and how will it fit into the mix of your current funds? Is there any overlap that should be eliminated?

When buying based on a recommendation, consider the source. Do they know you, your goals, and what type of investor you are?

What are the costs? Can I sell this investment if I determine later it is not right, or am I stuck holding it?

Make sure you understand all of the in’s and out’s of the investment in detail, and not simply the sales story. Too many advisors and investment firms make their living on selling ideas that sound good at the moment. Usually buying a story that sounds good today, isn’t the investment you will want to hold in the future.

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It is also critical before investing to have defined your basic investment philosophy. What is it you believe an investment should provide, and have you done your homework to back-up your philosophy?

An example of an investment philosophy is:

  • I will take only the stock market risks that are appropriate for my goals, risks, and knowledge of the markets.
  • Intelligent risk-taking involves managing the ‘tilt’ of your portfolio towards asset classes that may provide higher returns over time. 
  • Owning stocks in market-based funds rather than actively managed mutual funds will provide a way for me to design my portfolio to the exact risk-return.
  • With bonds, I want to rely on the fact my money will be available. For that reason I won’t chase yield. I also use bonds to allow me to take risks in the stock market, where those risks are rewarded.
  • I recognize that bonds, social security, and pensions do not keep up with inflation so will add “real assets” to my mix.

Once you define the type of investor that you are, you can analyze investments according to whether or not they fit your needs.

 

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Robert Schmansky is the founder of Clear Financial Advisors, a fee-only financial advisor and investment manager. Rob specializes in helping individuals, families and businesses create financial and investment plans based on their goals. He is a member of the Garrett Planning Network, National Association of Personal Financial Advisors, and Financial Planning Association.