I was struck by the above title of a recent article in the Economist. I thought it funny to characterize people as either a stock or a bond. But the more I read, the more I saw the point and how it applied to any number of our clients.
It’s easy to be simplistic and attach a more adventurous type to stocks and a more conservative type to bonds. But the article points out, someone might be a stock type in the choice of a career, yet have financial needs that are more bond in nature if they work in an economically precarious field. Let’s say the stock type is a house contractor and the bond type is a teacher.
The house contractor is also a diehard rugby player. The teacher is a global bird watcher. Keeping to type, the house contractor is all about growth in his portfolio in stocks and mutual funds. The teacher is very conservative, with a portfolio heavy in bonds and dividend-generating stocks.
But the hard, cold reality is that their investment personalities actually fly in the face of their self-interest. The house contractor works in a cyclical industry with huge peaks and troughs. He needs a conservative approach to counter the swings in his own profession.
In contrast, the teacher’s income is totally predictable. But it’s the only source of revenue she has. So she needs to grow her equity in preparation for retirement. Bonds and highly conservative stocks won’t get her there at an income level that would allow her to pursue the bird-watching travel she is planning.
“Young people, with few savings and decades of employment ahead, have most of their lifetime wealth embedded in their human capital. It has a payoff, just like a stock or a bond. It makes sense to take account of that when deciding what to hold as financial wealth.” – The Economist, August 23, 2018
In each case, it’s the role of the financial advisor to help clients invest against the grain of their own personalities. That’s tough. I realize, even with our own clients, we tend to let someone’s tolerance of risk dictate their investments perhaps more than we should. The focus should be on their financial objectives and how best to achieve them. We shouldn’t allow that judgement to be clouded by their persona.
Does this strike a chord with you about your own investment decisions? Then let’s talk.
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This information has been prepared by Barbara & Eric Chong who are Financial advisor for Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Financial Advisor can open accounts only in the provinces in which they are registered. For more information about Investia, please consult the official website at www.investia.ca.