| WHAT IS THE REAL REASON YOU SHOULD INVEST? |
Most people think they know the answer to the question of why should they invest. Yet many all too
often invest for the wrong reasons—and that can lead to financial difficulties. Most investors assume
that the goal of investing is to simply earn the highest return possible without losing money. If they’
re investing in common stocks, they assume they should earn at least 10 to 11 percent every year
because that’s roughly the long-term average for stocks. But often they’re not satisfied unless they
exceed that by earning 20 or 30 percent or, heck, doubling the return on their investment. But wise
financial representatives will tell you that earning the highest possible return should not be the real
goal of investing. Rather, the main purpose of investing is—in conjunction with other components of
your financial life—to help you realize major life goals:
A comfortable retirement, a dream job or business,
A college education for your children,
Funding for your favorite charities,
Or accumulating assets to pass on to your heirs.
What’s the difference between these two approaches to investing, you may wonder. What’s wrong
with double-digit returns? Won’t they accomplish those life goals? Nothing’s wrong with consistently
earning double-digit returns. It’s nice work if you can get it. The problem with shooting for the
highest return possible as the main goal in investing is that it can create unnecessary risks and
erratic investing patterns that ultimately undermine efforts to achieve those life goals that truly
matter to you.
Most financial representatives have war stories about clients, or more often, prospective clients, who
come to their office expecting that the representative’s primary job is to earn them fat returns on
their investments—to beat the market. When these representatives respond that they can’t design a
sound investment strategy until they understand the person’s goals and the other aspects of their
financial circumstances, these prospective clients often leave and head for the next financial
representative, until they find one who promises them glorious returns.
How can investing solely for the highest returns create unnecessary investment risk and erratic
investing patterns?
Holding unrealistic return expectations.
A California CERTIFIED FINANCIAL PLANNER™ practitioner recalls being fired by a client during the
height of the booming late 1990s stock market because though the client’s portfolio was doing very
well, and was more than accomplishing the client’s goals, it wasn’t earning the 100 percent annual
return the client thought it should be earning. The ensuing bear market harshly demonstrated to
that former client and many other exuberant investors that high double-digit returns of the 1990s
were not a given.
Taking unnecessary risks.
Much of the riskiest investing, overbuying, and panic selling during the late 1990s and early 2000s
would have been avoided if individual investors had created their own investment plan for achieving
long-term specific goals such as retirement or a college education. For example, investors who can
reach an investment goal by earning a modest average annual return are less apt to jump into
higher risk investments than those with no plan except to always “go for the highest return.”
Investors shooting for the highest returns also are more vulnerable to investment scams offering
returns that “are too good to be true.”
Not taking enough risk.
After risking all for the highest returns during the good times, many investors who got burned bailed
out of the stock market and are now afraid to invest at all. Some have even stopped contributing to
their company-sponsored retirement plans.
Again, they’ve lost sight of the real purpose of investing. The result is that they not only panicked
and cashed in their losses, they shifted their entire portfolios to low-yielding accounts and
investments. While these vehicles can serve useful financial purposes, holding an entire portfolio in
them hinders efforts to achieve long-term financial goals.
Failing to diversify.
Shooting solely for the highest returns tempts investors to chase and overload in the current hot
part of the market, and ignore under performing sections. When large-cap and high-tech stocks
stumbled in 2000–2002, stock-heavy investors weren’t situated to take advantage of the previously
ignored real estate investment trusts (REITs), or bonds, which had banner-return years.
This column is provided by the Financial Planning Association.
often invest for the wrong reasons—and that can lead to financial difficulties. Most investors assume
that the goal of investing is to simply earn the highest return possible without losing money. If they’
re investing in common stocks, they assume they should earn at least 10 to 11 percent every year
because that’s roughly the long-term average for stocks. But often they’re not satisfied unless they
exceed that by earning 20 or 30 percent or, heck, doubling the return on their investment. But wise
financial representatives will tell you that earning the highest possible return should not be the real
goal of investing. Rather, the main purpose of investing is—in conjunction with other components of
your financial life—to help you realize major life goals:
A comfortable retirement, a dream job or business,
A college education for your children,
Funding for your favorite charities,
Or accumulating assets to pass on to your heirs.
What’s the difference between these two approaches to investing, you may wonder. What’s wrong
with double-digit returns? Won’t they accomplish those life goals? Nothing’s wrong with consistently
earning double-digit returns. It’s nice work if you can get it. The problem with shooting for the
highest return possible as the main goal in investing is that it can create unnecessary risks and
erratic investing patterns that ultimately undermine efforts to achieve those life goals that truly
matter to you.
Most financial representatives have war stories about clients, or more often, prospective clients, who
come to their office expecting that the representative’s primary job is to earn them fat returns on
their investments—to beat the market. When these representatives respond that they can’t design a
sound investment strategy until they understand the person’s goals and the other aspects of their
financial circumstances, these prospective clients often leave and head for the next financial
representative, until they find one who promises them glorious returns.
How can investing solely for the highest returns create unnecessary investment risk and erratic
investing patterns?
Holding unrealistic return expectations.
A California CERTIFIED FINANCIAL PLANNER™ practitioner recalls being fired by a client during the
height of the booming late 1990s stock market because though the client’s portfolio was doing very
well, and was more than accomplishing the client’s goals, it wasn’t earning the 100 percent annual
return the client thought it should be earning. The ensuing bear market harshly demonstrated to
that former client and many other exuberant investors that high double-digit returns of the 1990s
were not a given.
Taking unnecessary risks.
Much of the riskiest investing, overbuying, and panic selling during the late 1990s and early 2000s
would have been avoided if individual investors had created their own investment plan for achieving
long-term specific goals such as retirement or a college education. For example, investors who can
reach an investment goal by earning a modest average annual return are less apt to jump into
higher risk investments than those with no plan except to always “go for the highest return.”
Investors shooting for the highest returns also are more vulnerable to investment scams offering
returns that “are too good to be true.”
Not taking enough risk.
After risking all for the highest returns during the good times, many investors who got burned bailed
out of the stock market and are now afraid to invest at all. Some have even stopped contributing to
their company-sponsored retirement plans.
Again, they’ve lost sight of the real purpose of investing. The result is that they not only panicked
and cashed in their losses, they shifted their entire portfolios to low-yielding accounts and
investments. While these vehicles can serve useful financial purposes, holding an entire portfolio in
them hinders efforts to achieve long-term financial goals.
Failing to diversify.
Shooting solely for the highest returns tempts investors to chase and overload in the current hot
part of the market, and ignore under performing sections. When large-cap and high-tech stocks
stumbled in 2000–2002, stock-heavy investors weren’t situated to take advantage of the previously
ignored real estate investment trusts (REITs), or bonds, which had banner-return years.
This column is provided by the Financial Planning Association.
The information in this newsletter is general in nature and should not be construed as tax or legal advice. Investment Centers
of America, Inc (ICA) does not provide tax or legal advice. Please consult your tax and/or legal advisor for guidance on your
particular situation. The information in this report has been obtained from sources considered to be reliable but we do not
guarantee that the forgoing material is accurate or complete. This article is not an offer to sell or a solicitation of an offer to
buy any security, and may not be reproduced or made available to other persons without the express consent of ICA.
of America, Inc (ICA) does not provide tax or legal advice. Please consult your tax and/or legal advisor for guidance on your
particular situation. The information in this report has been obtained from sources considered to be reliable but we do not
guarantee that the forgoing material is accurate or complete. This article is not an offer to sell or a solicitation of an offer to
buy any security, and may not be reproduced or made available to other persons without the express consent of ICA.
DMW Newsletter
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| Diane M Weyrick |
| 952-758-7140 |
| 952-758-7139 |
| Securities, advisory services and insurance products are offered through Investment Centers of America, Inc. (ICA) member FINRA, SIPC, a Registered Investment Advisor and affiliated insurance agencies. DMW & ICA are separate and unrelated companies. ICA does not provide tax or legal advice; consult your tax / legal advisor concerning your particular situation. |