The Dumbest Question I Have Ever Heard

The Dumbest Question I Have Ever Heard
24 Jun 2015

QuestionThere is no such thing as a dumb question, right? Normally, I would agree, but this one I have to call out.  I was reading a “top 5 list” of things to ask a financial planner before you hire them, and question #2 on this list was, “How does your performance compare to the benchmarks and are you able to outperform them?”  HUH?  Now if that’s not the dumbest question I have ever heard, I am not sure what is.

Let’s think about it for a second; you are going to hire someone to manage your money that tells you they can beat the markets? If someone was that good, why would they need your money? No one can beat the market consistently, and if someone tells you they can, run and run fast.

This is a major problem with the financial media today. These unrealistic expectations set investors and planners up for disastrous relationships. I shudder to think that the success of my firm would be predicated on my unique ability to beat the markets/benchmarks. How absurd!

What we need is a rewiring of what true money management really is.

So what should an individual look for in regards to true money management? In my opinion, it’s the ability of a financial planner to achieve or beat your unique “fair rate of return” goal, not some irrelevant, arbitrary index or number. How do you find out what your “fair rate of return” number is? The best way is to do a financial plan. Discuss your goals and concerns with your financial planner, and after the plan is established, you will know the investment return you will need to make each year.

With this knowledge, you will hopefully be able to tune out all the distractions thrown at us by the media on a daily basis. So, if your “fair rate of return” goal is 6% per year and the market goes up 25%, if you make 9%, well then you outperformed your goal by 50%! Sure, you underperformed the markets, but you still did well and beat your goal by 50%!!  In some sports, that kind of performance puts you in the Hall of Fame.

Have realistic expectations. Remember, if you outperform the market on the way up, you probably will follow it just as much on the way down, if not more; and markets do come down. Let’s focus on beating your unique goal.

I still don’t believe in dumb questions, but there is an exception to every rule.

Good luck!

Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Premier Investments of Iowa are not affiliated. Cambridge and Premier Investments of Iowa, Inc. do not offer tax advice.


Jeffrey Johnston

Jeff has over 30 years of experience in the investment industry. He currently holds his FINRA Serices 6, 63, 66, 7, 24 & 51 licenses with LPL Financial as well as his health and life insurance licenses.