Is This a Good Investment?

When people learn that I am a financial advisor, they often ask me if a particular stock or mutual fund is a good investment.

 My answer is always “it depends.” I answer this way for two reasons:

• The better question is not whether fund XYZ is a good investment, but rather whether fund XYZ is a good fit with this person’s overall financial and investment strategy. Knowing nothing about their financial situation there is no way to give them the good answer they deserve.
  
• From a selfish perspective, I don’t want to assume the liability of providing off the cuff financial advice. I’ve read about several financial advisors who have been sued for providing free advice of this type by investors who followed it and subsequently lost money. 

Over the years I have encountered many folks who have an array of various stocks, mutual funds, and other investments scattered over a variety of accounts. There is no overall plan for their portfolio. Rather they have read about this fund, a friend talked up that stock, etc. They have a collection of investments or what I call “financial clutter.” The investments are not in any way aligned with their financial goals or any sort of overall financial plan. There is often a high degree of overlap among holdings and not much real diversification. This can place their portfolio at significant risk during a market downturn.

Is this a good investment? A simple question, maybe. The answer is not simple, however.

Feel free to contact me with questions about investing and your investments.

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