The investment game has changed over the past two decades. Historically,
the challenge facing investors has been to identify good investments.
While that’s obviously still important, investors increasingly
recognize that that alone isn’t enough. Five good mutual funds can still
make a bad portfolio, or at least one that’s inappropriate for a given investor’s
goals. It’s becoming clear that investors must move beyond good
versus bad investments and toward appropriate or inappropriate usage of
investments, taking into account their time horizons and risk tolerance.
It’s a level of analysis that doesn’t transfer well to the sound-bite world of
televised financial advice, but it’s where investors need to go if they are
to succeed.
In this new reality, investments are the easy part. Determining
whether a stock or a fund is a quality offering with reasonable prospects
is a fairly straightforward task in these days of widespread financial information.
Knowing where a given stock or fund fits in your portfolio—
that’s a much trickier task. Ultimately, however, the art of investing
involves more than simply identifying good investments; it means finding
the right match between investment and investor. It’s no easy job.
Yet it’s what good financial planners do every day, and it’s the reason that
I have such great respect for these people.