So many investors search for the best investment strategy and products offering the highest returns (and lowest risk and tax!). When we tell them these do not exist, they get irritated and move to someone who hopefully can offer them these.
Investors want constant confirmation that they have chosen the right products and are on the right track to achieving their goals. One of the most common questions we receive goes, “These are my investments, and this is my asset allocation. Is this a good investment plan?”.
The truth is (when we have no product to sell and have an open mind), there is no such best investment plan or strategy and no best product. All we can do is assess our present situation, factor in our future needs, make some reasonable assumptions of inflation and investment returns and choose an asset allocation.
Within this asset allocation, we decide on suitable products and begin investing. This is all that anyone can do. If someone claims their choice is the best and is sure to succeed over the long term, they are either sales guys or are deluded, waiting for life to teach them a hard lesson.
Some like active funds. Some like passive funds. Some like a little bit of direct equity, some a lot more. Some like to tactically vary asset allocation, and some prefer to stay invested. Whatever we choose, no strategy is guaranteed to work. Also, see Eight Investment Truths hours of number crunching have taught me.
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So what then? We make a choice that allows us to sleep in peace. Then we take stock once a year. We review the inputs and assumptions in our goal planning. We find out “where we are” in our investment journey, the performance of our investments and course corrections as necessary. This tool may be useful here: Review your goal-based investment portfolio with this auditing tool.
Too much importance is given to the initial plan creation and product selection. Yes, this is important, but we cannot get married to the plan or the products. We must be ready to admit our initial choices did not work out and make changes as necessary.
Knowing how to review our portfolio and course-correct is key to investing success. The moment we realise that there are many routes to go from where we are today to where we wish to be in the future, money management becomes a lot easier. All we need to do is pick one route, focus on the destination, and not get distracted along the way.