What’s the best way to hit your investment target?
Photo: Eddi Laumans. Source: Wikipedia
There’s a school of thought that says people are basically the same: apart from our individual quirks, we all want a little income and a little growth from our investments. So we should combine a balance of stock and bond funds together to have a low-cost, broadly-diversified portfolio.
There’s a lot to be said for this: it’s cheap and it gets people started on the investment process. And people usually get more conservative with their money as they age, so reducing risk by increasing the bond allocation isn’t unreasonable.
But this ignores some important issues. People aren’t all alike. Once you scratch under the surface, we all have very different hopes, dreams, fears, and constraints. And everyone brings a different set of resources to the table: financial, emotional, intellectual, and so on. Using a “cookie-cutter” approach with mutual funds and investment models neglects our unique assets.
Building an investment portfolio is a lot like building a house. We all need shelter, but no two living spaces are alike. Every structure may all have a foundation, walls, and a roof, but the similarities end there. Homes in southern California are very different from dwellings in New England, which is different than the Midwest. And like our homes, our investments need to fit our current lifestyle and future plans. It needs to use the materials at hand to provide resources for the future.
Investing, like all of life, is complex and multifaceted. Managing our money is as much an art as it is a science. Some generalizations may be useful, but at its core all finance is really personal finance
Douglas R. Tengdin, CFA
Chief Investment Officer