One of the most important questions you should ask when hiring a financial adviser is this: do you manage your own money in the same way that you manage your clients’ money?
It may seem a silly question. Of course they would, wouldn’t they? Well, you’d be surprised at how many advisers don’t — and there are certainly plenty of fund managers who don’t invest in their own funds.
True, no two investors are the same. We have different goals, attitudes, risk appetites and values. And that means there is no single, "right" way to invest. But it’s important to know that your adviser genuinely believes in the general investment philosophy they advocate; and if they adopt a different philosophy with their own portfolio, that’s a very good reason to steer clear.
There is, in fact, a fairly broad consensus among genuine financial experts on what a sensible investment strategy looks like.
Joshua Brown and financial wellness expert Brian Portnoy interviewed 25 experts for a book called How I Invest My Money. Not unsurprisingly, there was wide range of opinions on the details, but the experts tended to agree on the fundamental principles.
So, what are the main lessons the book can teach us?
1. Choose simplicity
Well, one of those lessons is the virtue of keeping it simple. Diversifying broadly, staying disciplined and only taking risks you understand are the keys to success, counsels one of the interviewees, a veteran financial adviser.
2. Understand what you value
A second theme in the book is the notion of understanding what you value, apart from money. For one subject and his wife, the key is maintaining a sense of independence. And it is this non-negotiable value that shapes their investment approach. Someone else may place the biggest emphasis on flexibility, the ability to change one’s mind at short notice, pull up roots and start all over again. An illiquid portfolio might not be the best solution for a person like that.
3. Accept your mistakes
Another of the lessons from money experts contained in How I Invest My Money is their willingness to accept mistakes along the way. Not every financial decision you make will turn out perfectly. But the best investors learn from their missteps and often discover opportunity as a result.
4. Learn to let go
Learning to let go is also touted as an important attribute. You simply cannot control everything. Markets are inherently volatile and losses are inevitable. Not every part of your portfolio is going to prosper. That is why you diversify. But risk is the flipside of reward. And how much risk you are prepared to take is — you guessed it — a personal choice.
Remember: we’re all different
People differ in their attitudes to risk and return because they are formed by different experiences and value different things. So, what comes through in the book again and again is how important individual perspectives can be in shaping how you invest.
“All of the people in this volume are well-versed in academic investing theories,” Brown writes. “But everyone is coming from somewhere unique. Everyone has a story to tell and how we invest, save and spend is one revealing way of telling that story.”
Brown’s motivation for writing the book, he says, was his experience of speaking on financial television shows for nearly a decade without ever being asked about his own personal approach to building wealth.
“I’ve commented on everything under the sun. And in all of that time, not once did someone say: ‘Tell us about how you invest your money.’”
What are you really looking for?
It turns out the best answer to the question of how to invest is that “it depends”. For a start, not everybody wants to be rich. For some, security and the meeting of simple needs is enough. For others, already wealthy, it might be about sharing that wealth.
But it’s clear that what works for a professional money manager might not be appropriate for everyone. On that score, the book cites the example of doctors, who frequently choose different end-of-life treatments for themselves than they would prescribe for their patients.
“A doctor may throw the kitchen sink at her patient’s cancer, but choose palliative care for herself,” the authors write.
“The difference between what someone suggests you do and what they do for themselves isn’t always a bad thing. It just underscores that, when dealing with complicated and emotional issues that affect you and your family, there is no one right answer. There is no universal truth.”
The search for the investment holy grail goes on. But one of the key lessons from Brown and Portnoy's book is that a good starting point is to “know thyself”.