Broker Check
Straight Talk

Straight Talk

February 24, 2022

Straight Talk

By Peter T. Waldron

Managing Partner of Waldron Partners

“I just think you ought to talk straight with your people.” - John Kennedy

                In the world of investing, there are a few people who speak with forked tongues. These people are slick and present concepts that amaze and delight. Their ideas are fanciful, supposedly providing the solution to all your problems. In this era, you would think that the speed of information would eventually eliminate this kind of business; however, instead it has become even more dynamic, constantly shifting and masking itself in many forms. The consumer is left misguided and disillusioned, not knowing where the truth ends and where fiction begins. While it can be difficult to understand this type of deception, the truth lands in an even more undistinguishable place. Throughout this article, we will explore the variations of fact and fiction in the investment realm to try and create a framework for clearer decision making and, with any luck, better outcomes.

                The investment industry can be loosely broken up into five main categories: individual positions (stocks/bonds), active (mutual funds, SMAs), passive (mutual funds, ETFs), insurance products (variable annuities, fixed annuities, index annuities), and other (hedge funds, private equity, REITs, partnerships). There are mountains of data and research to support why each category is supposedly the best. The purpose of this article is not to try and claim otherwise as each has its own merits; like any industry, there are good and bad actors. But it can be extremely difficult at times to discern the difference between the good and bad.

                Perhaps the most difficult part of investing is that our current education system doesn’t provide any level of knowledge here; instead, you must take it upon yourself to learn. There are books, websites, newsletters, and seminars. But which one product is the best fit for you? As the consumer, you could spend time educating yourself about one product, but without also learning about all the other products out there, you will not be able to make accurate comparisons in order to make a truly informed decision. Furthermore, as you learn you might be ever so slightly led off the course of truth by numbers and stories. While the numbers and stories appear to paint a rosy picture, in many cases they are only designed to entice you with facts that are fiction.

                Thoroughly confused, you are now confronted with the truth that there is no easy way to solve this dilemma. There are, in fact, few frameworks that can simplify what is so complex. Perhaps the easiest one to remember is: can you explain the concept or investment idea to your grandma? If you cannot convey the basic elements of the investment in a few simple statements, then you should probably avoid it altogether. The complexity of an investment is sometimes meant to hide the underlying details that drive more of your money into someone else’s pocket. While everyone needs to make a living, purposefully concealing the way you are paid, it could be argued, is unethical.

                Another way to simplify the process of making investment decisions is to build an investment policy statement (IPS). An IPS is a way to solidify your plan of action for investing. It is an agreement between your logical and emotional selves, whereas you develop this document using your logical mind to protect yourself in the future from your emotions. Your IPS should contain your investment objectives, which can include the return you are trying to achieve, the risk you are willing to take (risks: volatility, liquidity, credit, concentration, etc.), and your time horizons. In addition, your IPS should also include asset types and classes. An IPS can be basic or elaborate, but it should always be tailored to your needs.

                While this article does not solve all the complexities that are involved in investment decision making, hopefully it helps to illuminate a few key realities that we face in today’s investment world. The age-old motto of ‘can I explain this to my grandma’ holds true as a steadfast tool for investing. Furthermore, creating a customized IPS can help you filter out investments that are not in alignment with your logical brain, thereby keeping your emotions at bay. The investment world can be intimidating, and if you decide to go it on your own, remember the tools mentioned in this article. If all else fails, there are in fact ethical investment professionals out there who care about you and your objectives and will help you to navigate the investment world.

“Three things cannot be long hidden: the sun, the moon, and the truth.” - Buddha


Peter T. Waldron: California Insurance License #0E47827

Peter T. Waldron is a registered representative of Lincoln Financial Advisors, a broker/dealer, member SIPC, and offers investment advisory services through Sagemark Consulting, a division of Lincoln Financial Advisors Corp., a registered investment advisor, Waldron Partners, 3201 Danville Blvd., Suite 190 PO Box 528, Alamo, CA 94507.  Waldron Partners is not an affiliate of Lincoln Financial Advisors. Insurance is offered through Lincoln Marketing and Insurance Agency, LLC and Lincoln Associates Insurance Agency, Inc. and other fine companies. This material is for use with the general public and is designed for informational or educational purposes only.  It is not intended as legal, tax or direct investment advice. Lincoln Financial Advisors does not offer legal or tax advice.  CRN-3558134-042121