You’ve heard the old adage that what you don’t know won’t hurt you. Well, in the investing world that is 100% pure Bovine Scatology! You may be the owner of a portfolio constructed on a foundation of ooey-gooey pizza.
Before joining the Registered Investment Advisor side of the financial industry, I spent almost 20 years working for brokerage firms—some large names you know. It’s customary in the brokerage world for wholesalers, salespeople from mutual fund and annuity companies, to buy lunch for a brokerage office in exchange for pitching the latest and greatest investment product their company has to offer. Like any salesperson, the wholesaler’s job is to convince the brokers to use the product being pitched. Whether the brokers feel an obligation because they’re being fed or they see an opportunity to move closer to meeting the sales requirements imposed by their employer, there will be a lot of phone calls made that afternoon.
As soon as the last amen of the wholesaler sales pitch is complete the brokers scurry back to their offices and meticulously go through their client list looking for someone, anyone, they can sell this new investment. Any good salesman can make a product sound great, and broker salespeople are no exception. Over the years I’ve reviewed portfolios of people who wanted a second opinion because they questioned whether their current financial advisor had the client’s best interest in mind. Often their portfolios were filled with a hodge-podge of investments that had massive overlap, poor diversification, and didn’t fit into a well thought out investment plan. It was an alphabet soup of stuff they’d been sold because their broker heard the pitch while he ate a wholesaler’s lunch.
Your portfolio is worth more than a large two-topping pizza. This is about your life and your future, not a broker’s sales goals. It should be constructed based on your dreams, goals, and desires. There should be a specific investment plan to accomplish those dreams, goals, and desires and the investments going into your portfolio should meet those objectives. Whenever an investment suggestion is made to you ask these questions:
- Why is it being recommended to me now?
- Is it a recommendation that’s good for ME?
- Whose interest is being served by this recommendation?
- Is it a recommendation based on my investment plan?
- Does it truly enhance my overall portfolio?
- Will my portfolio still be correctly diversified if this investment is added?
- Do I have any other positions that are similar to the one being recommended?
- Should other investments be sold to maintain my balance?
There are good people in the financial industry. But investment recommendations are often made for reasons you don’t know about. Educate yourself. Avoid becoming the owner of a Pizza Portfolio.
Alhambra Investments can help you with your financial planning. Call us today for a free consultation.