True Life Investment Planning

The following story is fiction.  Any resemblance to actual persons or events is strictly coincidental.  That being said, this has probably happened to you.

A guy walks into a financial advisor’s office (stop me if you’ve heard this one) and sits down to meet for the first time.

Financial Advisor (FA):  So, what brings you in today?

Client:  Well, I’m not happy with the investment performance I’m getting with my old financial advisor.  He asked me a few questions about risk and how long until I plan to retire, then he invested me in these…  (Hands over his latest investment statement.)

FA:  Well, these are mutual funds…

Client: Yeah, he said that…  What are those?

FA: A mutual fund is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.1

Client:  Am I invested in the best ones?

FA: That depends.  Can I ask you some questions?

At this point the advisor, being very proficient at his job proceeds to ask the client a litany of very good questions.  They determine the client’s appetite for risk, his goals and his timeline for achieving them.

FA:  Well, based on what you’ve shared with me, I don’t think that these mutual funds are the right fit for you at all.  What you need are ETFs!

Client: What’s that?

FA: An ETF, or exchange traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund.1 


This is one of the fundamental problems that I see with the current state of financial advice.  The questions that clients are asked regarding investments are focused solely around making a decision about which “asset allocation” should be applied to the client’s investment portfolio.  The advisor then selects from a subset of the investment universe a mixture of stocks, bonds and (maybe) alternative investments that (at best) are in line with the client’s goals and risk tolerance or (likely) at least match up to the five-question risk tolerance questionnaire that the advisor went over with the client to satisfy his compliance officer.

Before I dig into this any further, I need to make one comment.  Mutual funds and publicly-traded securities probably have a place in almost everyone’s overall portfolio.  Many investors should never own anything other than cash and mutual funds or ETFs.  But not everyone, and how does your advisor know if you’re one of the few if they never ask?

I propose a change to the way we discuss investments; a step before we automatically launch into traditional asset allocation.  Let’s add to the conversation some “disqualifiers” to make sure that the mutual funds are the right way to go for you.

Q. What do you want your investments to accomplish for you?

Do you want to work until you’re 65 (give or take a few years), then never work another day in your life, living off of the dividends and compounded principal that you’ve managed to set aside over a 40 year career?  Handled responsibly, this is a “good” approach, and it’s the one that the vast majority of Americans (those who are preparing for retirement, anyway) take.  In this case, mutual funds become a useful tool.  Historically, it’s been their nature to (over a long enough time-frame) have a positive return.  If you put money into mutual funds 40 years ago, and a little bit more each month since then, you very probably have more money than you would if you had stuck that money under the mattress.  If the market was good to you, you may have even been able to retire a few years early.

What if that’s not what you want?  What if you want to be “rich?”  Whoa!  Pause. Disclaimer time.  Today’s zealously-litigious society requires that I point something out.  I am not promising that anything I mention herein is going to make you “rich.”  I am simply pointing out that by using the investment tools of the masses, you’re going to end up with the investment returns of the masses.  I’m not going to hit you with statistics, but I will share an observation.  In my years as an advisor, I have only run across one multi-millionaire client under 50 who got there owning only mutual funds and ETFs.  I’m willing to bet that her responsible attitude toward saving and her mid-six-figure salary had a helluva lot more to do with her success than her mutual funds did.

The vast majority of the wealthiest clients that I’ve worked with over the years have been business owners.  Instead of investing their money into someone else’s company, they invested it in their own, often with a healthy dose of their time and their effort.  That doesn’t mean that they started out intending to create a full-time job for themselves.  Many clients have started their businesses as a small side-hobby around something they enjoyed, or as a creative, part-time response to a problem that they saw.  Over time, they realized that they could make more money by focusing on their “side-hustle” than they were at their “real job.”  It doesn’t happen every time, but it doesn’t happen at all unless you try.

What if you want to have that “passive income” lifestyle now, instead of when you’re 65? It’s doable, but mutual funds may not be the most efficient vehicle at providing it. Perhaps you’re better suited to invest some of your money into income-producing real estate.  This decision comes with a whole slew of new questions, but they deserve to be explored!

Q.  Is it important to you to be able to influence your investments?

If I own shares of  Apple, Inc., there’s not really a whole lot that I can do to impact my investment experience.  I could persuasively convince each of my friends and family members to buy the new iPhone, and it still probably wouldn’t create a radar blip for the company.  In fact, if I delve very far into trying to improve the value of my stake, I’m liable to wind up on the wrong side of legal action for manipulating the price of a publicly-traded company.

What if you instead owned a stake in a smaller, local business.  You might be able to leverage your skills and/or contacts to generate a better return on your investment, without fear.  For some people, that small business may even be their own hobby-turned-profitable.  For others, it may make sense to invest more passively in others’ businesses.

Q.  How important is it that you take pride in the investments you own?

Many people invest their money without thought to where it might end up, but not everyone.  For some, the thought of supporting a particular company may make them shudder, but they might not even know that they own a part of it in a mutual fund.

These questions are just a few of many that I ask clients before we look at how their money, time and effort should be invested.  For the majority, large baskets of publicly-traded company still make the most sense for the bulk, if not all, of their investment portfolio.  Doesn’t it make sense to ask, though?


Live your True Life.



1 Thanks for the handy definitions,
2 Another shout out to Joshua Sheats of Radical Personal Finance, especially for Episode 281, which inspired a new way to look at investing, and in turn, this post.
True Life Investment Planning

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