What’s good to invest today? – 05/25/2023 – From Grain to Grain
What’s good to invest today? Every investment adviser is asked this question frequently. The question seems well-intentioned, but it can have bad consequences for the investor’s portfolio. I explain what the problem is with the question and what questioning is most appropriate.
Investing is a process similar to a diet. The way you invest has to follow a methodology.
Imagine you arrive at a grocery store and ask an attendant: “What’s good today?”. What do you think the answer will be? Do you really believe that the attendant will recommend vegetables that would be good for your diet?
Before investing, you need to have a plan. As well as in the diet.
When you go on a diet, you need a goal. To achieve this goal, you must follow a well-structured and diversified food plan.
Yes, it’s possible to get away from the diet, in moderation, but it can’t be a habit. The same should happen with investments.
Possibly you won’t like everything you eat on the diet. The same will happen in investments.
You don’t invest in what looks good today, but in what will be better for your equity in the future.
When you have a plan and there are new resources to invest, you will invest precisely in that asset class that is below the target weight in the plan.
For example, if your plan recommends increasing your position in fixed-rate fixed income, you do not need to sell post-fixed securities at a loss or with a higher tax burden. The adjustment can be made in the contributions. These contributions should be frequent, precisely to optimize these rebalancing.
Therefore, the appropriate question is: within my investment plan, which asset is better to raise the weight at this moment?
Note that to ask this question, you first need to have a plan. If you don’t have it, you’re not investing, you’re just accumulating.
Therefore, asking the question in the title of the text can lead to a misinterpretation of what you want from the person who assists you. In this way, you may receive a recommendation that is not in line with your planning.
Want to see another example?
When a company decides to make an investment to grow, it creates a plan. After having a plan drawn up, she starts investing.
No one imagines that a company calls an importer and asks: “what good machine is there to buy?”.
The acquisition of machinery by the company follows the plan outlined.
Likewise, your investments must also follow the planning.
Michael Viriato is an investment advisor and founding partner of Investor House.
Talk directly to me via email.
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