The problem with a lot of financial advertising these days is the “one size fits all” attitude. Financial companies market their product to everyone, even though we’re all different.
How to find the right investment
Here’s what Nobel Prize winner of Economics Robert Merton personally told me: goal-based investing is the best formula to reach financial success.
When I interviewed Professor Merton on for my radio show, he explained that investments need to be driven by an individual’s specific wants and needs, rather than by following a rule of thumb, such as “30% stocks and 70% bonds.” General guidelines should only be used for those individuals not committed to achieving their personal best, and who, for whatever reasons, aren’t able to implement goal-based investing.
“If you focus on a goal, for that goal you can have an investment strategy that for the same amount of resources has a better chance of getting there than the more generic ones,” he explains.
Believe in your strategy
Once your goals are set, formulate an investment strategy that you are comfortable with, believe in, and understand. Well-formulated and clear strategies are better than complicated ones. Sticking to a well-defined strategy helps you avoid being swept away by imprudent advice, hasty decisions, and emotions.
No such thing as a “free lunch”
Professor Merton’s final piece of advice was, “there’s no such thing as a free lunch. If it looks too good to be true, then it isn’t true.”
If you come across investments that sound profitable, have low risk, and involve little work… be wary. It’s up to the individual investor to do due diligence on both the investments and advisor. Remember some of the awful scams from the past few years?
For more tips and ideas from Robert Merton, listen to the original interview on the player below.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published July 2, 2015.