At its core, a solid investment approach is about you: Your goals, your objectives, your family’s future, all pertaining to your unique situation. Sales are about profit for a retail company.
The two are fundamentally different, yet often confused. This unfortunately can lead individuals to make decisions better suiting a salesperson’s targets than their own financial wellbeing.
It’s “You’ve been sold” vs “You’ve been advised”. The difference is night and day. One is about pushing products; the other is about providing thoughtful guidance for your financial journey.
The Rational Approach: Plan First, Products Later
The very first step is to have a plan and goals. This is not about picking an investment or guessing what the market will do next, but rather a comprehensive financial roadmap that aligns your money with your life’s goals. That might look like a comfortable retirement, funding your children’s education, or buying that dream home.
From there you can start to think about how you will overcome barriers to these goals. This process includes determining:
1. An investment approach: This supports your big goals over time – you decide what these are.
2. A savings strategy: This ensures a buffer or a nest egg that is separate to your investments, so you don’t have to dip into them should you need extra funds (for rainy days, holidays, or if your employment status changes unexpectedly).
3. A framework for making decisions about insurance coverage: For your health, your home, and even your income. Protecting what matters most to you can be a boon in the face of unexpected events.
These steps are all about designing a structure that helps you achieve your objectives while managing risk and adapting to changes over time.
Then, and only then, do you reach the final step: selecting specific financial products.
Financial products are merely the tools to implement your plan. They are not the plan itself. Too often people make the mistake of focusing on the products first, thinking that picking the right one will guarantee financial success.
It won’t. If we’re still thinking of catchy phrases, think “all gear, no idea”. You can have the best tools in the world for a home project, but you could still end up with wonky shelves if you ignore tried and true methodology – the same rule applies here.
Without a plan and a process, even the best product may be ill-suited to your needs.
As I’ve always told my clients, a great investment portfolio is the result of a great financial plan, never the other way around. No portfolio can replace solid financial planning.
The Illusion of Financial News and Product-Centric Thinking
Most financial “news” we encounter tends to focus on the product side of the equation. We are bombarded with headlines proclaiming the next hot stock or the latest market trend that appears to promise outsized returns.
Books, podcasts, and articles on finance frequently follow the same path, offering titbits of information about products while skipping over the most crucial element of the equation: your plan.
It’s easy to see why this happens. Talking about products is easier than diving into the complexities of financial planning… It’s also more profitable for those doing the selling.
All the noise about products just distracts from what really matters – defining your goals, understanding your situation, and building a robust financial strategy. Product-focused decisions are little more than gambling, and they often leave individuals chasing short-term gains at the expense of long-term success.
Fee Transparency: The Hidden Key to True Value
How can you truly know the value of an investment if you don’t understand its cost? Full fee transparency is not just a regulatory requirement – it’s essential for making informed decisions.
Make sure you’re fully aware of the T&Cs: Are there management fees, advisory fees, commissions? Hidden fees or complex fee structures can obscure the true cost of a financial product, eating away at the sum of your returns.
In my younger years at university, I studied property valuation amongst other things. There’s an old saying that a real estate appraisal isn’t a valuation.
An appraisal is provided for free, by someone keen to earn a commission by selling the property. A valuation, on the other hand, is a detailed, impartial assessment provided by someone who is paid a fee for their expertise, with no vested interest in the outcome.
Similarly, you should seek financial advice from an unbiased expert with your best interests in mind, not someone whose success depends on selling a product.
I’m not saying the products aren’t important. They are. But remember, there’s an order to these things – and that order matters.
First, you must have a plan that accounts for your objectives, risk tolerance, and time horizon.
Second, you need a clearly defined investment process aligning with that plan. This process also guides your decisions about savings, insurance, and other financial tools.
Third, you can move on to finding the right products to populate your plan. With a clear plan and process, you can choose products that serve your goals – not the other way around.
Jumping into product-based decisions is much like chasing any other hot stock; you’re often putting your eggs in one basket. Just because a financial product or class of product is doing well now, doesn’t mean you can rely on it to do so in future.
Don’t get sold a dream product – get solid, unbiased, strategic advice from a trusted financial adviser instead.
