My Best and Worst Investment Decisions Ever
July 08, 2013If you are considering working with a financial advisor, you need to ask some important questions when deciding if a professional is qualified to help you reach your financial life goals. Last year, I was asked a simple but powerful question that appeared in an interview for a Forbes.com article. It was actually a two part question that was framed as things that everyone should ask their financial advisor.
- · What was your worst investment decision?
- · What was your best investment decision?
This week, each of the planners will respond to these questions in their blog posts. Here is the response that I gave at the time:
My worst investment was a global technology fund that actually resulted in around a 400% rate of return with just around a one year holding period. This was late ’90s right in the heart of the technology boom. I was in graduate school at the time and luckily I sold the fund right around the peak and used the proceeds for a down payment on my first home. You may be wondering why this was a problem since it certainly sounds like a winner. Well, while my first real exposure to stock market investing was such a success it set me up for some pretty unrealistic expectations going forward. Nine to ten percent annual returns seem pretty boring when you hit a home run the first time at the plate in the big leagues of real world investing. After a few years of overly aggressive investing in individual growth stocks (without a clear investment plan) and even attempting some day trading I quickly saw how one positive investment led to many more negative investment experiences based on short-sightedness and greed. My initial gains and timely profit taking to buy a house impacted my future investment behavior and led to future losses.
This also helped me set the stage for what I hope to be my best investment ever which was not an individual stock, bond, REIT, hedge fund, or commodities holding – my best investment was actually in a financial life plan that helped give my investments meaning and purpose. My focus shifted from rates of return, leading market indicators, portfolio volatility, and news headlines to long-term goals and overall strategy. I still focus on the quantitative side of investment planning, but I have shifted to a more passive investment philosophy that is not driven by stock picking or market timing. The biggest emphasis in my investment strategy is found through the use of a written Investment Policy Statement that helps guide my investment decisions in light of my financial life plan. This simple document helps streamline my investments and outlines what fits into my family’s investment portfolio. Yes, I still want the highest rate of return possible given my preference for risk. But I am most concerned about whether or not I can achieve important life goals such as sending my kids to college without burdening them with debt and having the freedom to retire on my terms.
Looking back at my response, I am reminded of the powerful lessons that I learned early in my career as a financial planner. These early experiences did more than help shape my beliefs about how to align the investment planning discussion within the context of a holistic financial plan when working with people. They helped develop my own approach to managing my own portfolio.
More importantly, I realized that by taking a deeper look into my early experiences with money helped me became more self-aware of my values and I was able to structure my financial plan in line with these values. I strongly believe that these types of questions should not just be directed at the financial professionals in our lives, but everyone should take the time to explore some of their best and worst investment decisions. Would you like to share some of your best and worst investment decisions? If so, leave your comments below and we look forward to hearing from you.