The Basics Never Go Away

“Do you know anything about Chinese currency?” said a prospective client recently.  “I want to invest in Chinese currency and water ventures.”

“OK,well those are good opportunities for us to explore.” I replied.

“First I’d help you establish your goals though, then we’d take a look at what investment assets you have, then proceed to explore the best asset allocation driven by your goals and your loss threshold”.

He exhaled his enthusiasm.

“Which doesn’t mean they aren’t worthy investments, but we don’t know how they, or any asset, would fit into your overall goals and plans until we identify said goals and plan.”

He didn’t like that either.

“We want to take a look at creating a framework for meeting your goals, and then seeing where speculative single plays fit into the goals”.

Definitely didn’t like that.

He really wanted to bypass goal setting, the financial planning process actually, and get right into these 2 speculative investments.

I can appreciate the eagerness and focus on investment opportunities.

Yet I hesitate to recommend any investment, aggressive or conservative, until I have a complete picture of the client’s goals, loss threshold (risk tolerance), investment resources, and knowledge of asset classes.

In following up with him, he decided he didn’t want a financial plan, but instead wanted to jump right into investing in Chinese currency and water ventures.

I cringe thinking about how he is leapfrogging ahead of the basics and going straight into speculative plays.

They aren’t speculative based on asset type, they are speculative because they aren’t being considered in the context of a financial plan.

I stand by the value that the financial planning process provides: Creating a roadmap that informs which assets are suitable for what a client is hoping to accomplish and, equally significant, that the client understands the assets within the context of the role they play in fulfilling a financial plan.

Which isn’t to say Chinese currency and water ventures are bad choices, it’s just that they are shots in the dark without have anything further to inform the decision for any client.