Investing – Ask the right questions

The most common questions I get asked about our investment approach are: “What are your fees?” and “What’s your rate of return?” It seems like the culture has trained us to ask these questions when it comes to investing. Respectfully, they’re the wrong questions.

Sure, fees are important because you want to take a cost-effective approach. That’s always smart. However, it is not one of the most important questions. For example, when you’re evaluating a surgeon, do you shop for the cheapest one or the one who has the highest probability of a good outcome?

The rate of return can be a highly misleading indicator of investment performance. An investment advisor could boast of a seemingly incredible 50% rate of return one year while taking an incredible risk investing in only a handful of stocks. That same portfolio might be down 75% the next year!

These are the two most important questions to ask when seeking investment counsel:

  1. What is your process for ensuring I have a successful investment outcome?

I want to know your belief about capital markets. Are you relying on forecasting… trying to outguess others… or are you using a more systematic approach where you simply harvest the returns from capital markets? How are you allocating your capital among different types of businesses (asset classes)?

  1. Based on my values, how can you help me have a positive impact on the world?

I’m interested in how you develop an approach that invests in companies that create compelling value for the global common good. How do the companies that you invest in treat their customers, employees, and suppliers? Is the product or service something I can fully support? For example, I certainly want to avoid companies that violate basic human rights.

We all want good investment outcomes. But if you’re asking the wrong questions, you’ll always get the wrong answers. Take time to be curious regarding the investment advisor’s belief about capital markets. What’s the advisor’s process? Make sure you’re confident in the advisor’s approach.

Finally, does the advisor invest in companies that are doing well even as they’re doing good? Do these companies align with your values? There are thousands of companies and mutual funds in which to invest. Why invest in those that you don’t identify with?

The next time you look for an investment advisor, make sure you are asking the right questions!

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