Part 2: The Two Mandatory Questions Every Investor Should Ask Themselves


In Part 1 of this 2-part series, I gave my assumption that investors want to get the best returns possible from their investments. I recommended every investor ask two questions:

1.   Who is the right advisory team to work with?  

2.   Can they deliver exceptional results?  

I offered what I thought was the logical process of what to look for in a firm to ensure there was a broad enough set of investment choices so as to have a chance to capture those returns.

I will now address how I believe you can have a reasonable chance to achieve better-than-average returns.  Better-than-average returns are not, I repeat, are NOT the returns you can get in a day, week or month, but over a reasonable time frame. I suggest a reasonable time frame is a complete market cycle, which should in recent history include the global financial crisis of 2008/09. This gives the process you are using a reasonable chance to prove, or disprove itself in both falling and rising markets. 

So what is the process to get returns?

There should be a discipline that is very well documented and relentlessly applied to your portfolio. I will refer back to Confucius to enlighten us as to why this is so important:

Success depends upon previous preparation, and without such preparation there is sure to be failure.
— Confucius

If the advisor can’t articulate a process, that they apply consistently to the markets and proves it adds value, one would have to question their level of preparedness.  In all seriousness, these are the two questions that absolutely need to be asked. It does not matter if you are dealing with your brother, mother or best friend. If they do not have a process that proves it adds value, you have to apply another quote:

Real knowledge is to know the extent of one’s ignorance.
— Confucius

If the person you are dealing with does not have real knowledge, they are depending upon their client’s lack of knowledge as well.

Set A Goal

I’m a fan of the book The Slight Edge. It uncomplicates the decision-making process. Set a goal. Then you only have one of two choices.

One choice takes you closer to your goal.

The other takes you further away.

There is no middle ground. You are either moving closer to your goal or further away. Most investors have goals, but they are often too vague, such as “I’m saving for retirement…”. 

Investors need to be specific, such as: I need to earn 8% annually on my investments, while contributing 12% of my gross income, to achieve my retirement income goal of $65,000 after tax. You then need to hold whoever helps you manage your investments accountable. This doesn’t mean they will be perfect, but you need confidence they can deliver over the long term, and hopefully by a comfortable margin.

A lack of results in your retirement plan moves you further away from retirement, or towards a retirement with less income.  It is pretty simple and brutal at the same time. Your retirement can represent about 1/3 of your life. Whatever your age, take it seriously, get engaged, or pay the price. The two questions I’ve provided are a very straight forward solution to a complex issue. 

The beauty is that you don’t even have to do the work.  Get as many proposals as you like from various investment professionals, then send all the proposals back to each advisory team and have them tell you why theirs is most suitable for you.  They only need to substantiate why their strategy has better risk, return and recovery ratios than the others over a complete market cycle. Then you get to choose the best of the best. This is all about the data. Data does not lie (just be sure - ask if their data is audited). The answer should be yes and by whom.

It is a competitive world out there and people like myself compete for your money every day. Don’t be shy about asking tough questions, they only make you more aware and engaged. It also shows you care about your money, and caring is a powerful thing.