For a certain type of financial expert, there is one question that is extremely unwelcome and is asked in a variety of social situations: “Do you have any hot investment tips?”
No. The answer is always no.
For financial advisors who think this way and for people in similar professions, investing is necessary but may not be particularly interesting or enjoyable.
These professionals know how to invest, and they care about getting it done right. But to them—and maybe to you—investing is simply a tool to help people achieve their most important goals. And helping people define those goals and then achieve them is what makes the job so fulfilling.
There's nothing wrong with that. In fact, it may be the healthiest way to think about money management, whether you're managing your finances yourself or trying to find someone to work with who thinks the same way.
Defiance requires courage
It may seem reasonable and even obvious to prioritize goals—and the ongoing, deep conversations needed to set and refine them—over detailed observation of the stock market. But the financial services industry struggles to do this.
For decades, stockbrokers made more money when you traded stocks, which led to more trading activity and investment strategies. Many financial planners still calculate their fees based on the assets they manage for you, which leads to too many conversations focusing on how (and how aggressively) they invest those assets.
Therefore, it takes a lot of courage for a financial expert to refuse discussions about investments or to admit that the market situation is not exactly rosy.
“It definitely feels risky to say that in the newspaper,” said Danika Waddell, a Seattle-based financial planner who first said it out loud when prompted by Joy Lere, a psychologist and executive coach. She and Dr. Lere were returning from dinner at a conference when Dr. Lere asked her what she liked least about her job and what drained her most energy.
Fortitude is also required for individuals trying to be financially successful. They have to filter out the noise about how everyone is supposedly making a fortune on Nvidia or other hot stocks or funds.
But how does one do it?
Boredom is a virtue
“I think investing should be boring,” says Leighann Miko, a financial planner with offices in Oregon and California. “We don't want to put too much emphasis on it.”
The big idea is that you take what different markets – stocks, bonds, real estate – offer you. That means you buy mutual funds or exchange-traded funds that own all of the securities in a particular segment. So a fund that tracks the S&P 500 stock market index owns all 500 of those stocks.
If you can handle more risk, you'll own more stock funds and keep less money in cash. But you shouldn't bet too much on a handful of individual companies or a market segment, because that can quickly erode your net worth if you guess wrong. And it's a guess.
This approach has many advantages. These market-tracking funds have low fees and the overall portfolio is usually less volatile than individual stocks. In the long run, this approach should give you better returns.
Joy comes from different conversations
Buying boring, market-tracking index funds is called passive investing. This name makes sense because you generally vow not to enter markets and then get out when things get messy. Instead, you stay the course and invest, say, 80 percent of your retirement savings in stocks for the first 25 years of your career.
The beauty of this is that it leaves time to ask yourself or an advisor more targeted questions. What kind of living situation would make you happier? What do aging relatives need from you and how much can you give? How can you best help your grandchildren? But asking and answering these questions is anything but passive.
“We make sure we are actively planning for things that matter when people express their deepest and most important desires in life,” Ms. Miko said. “If you don't know what the purpose of money is, how can you develop an investment strategy for it?”
Mike Zung, a financial planner in Lee's Summit, Missouri, has little to say to people he meets in private conversations, such as interest rate forecasts. “I prefer to hear about their first memories of money and how partners handle money together,” he says.
This is a somewhat unusual question for a stranger, but it is not off-limits for a friend. A good friend of someone who does not have access to professional financial support may want to follow up – and try to help – if they sense the right way to start the conversation.
“I want to know what their current and future ideal life looks like and make sure their financial situation supports that,” said Ms. Waddell, who recently spoke with a client who believes working as a therapist might have been a better career choice.
Is it too late for someone in their forties to change jobs? Maybe not. And other major turning points in life?
“There are going to be one or two things that are pretty critical,” Ms. Waddell said. “And for most people, those are not going to be investments.”