You've seen a "one-size-fits-all" garment before, haven't you? A T-shirt perhaps, or even worse, a pair of underwear?
We all know it's a lie when we see it. There's not a chance that piece of clothing will fit all.
I suppose they can get away with that marketing phrase because common sense tells us it isn't true. We don't sue them for false advertising. We simply think "Ha. I won't fit in that," and we walk away.
If only such common sense prevailed when it came to investing. Alas, it doesn't.
Every day we are bombarded with one-size-fits-all investing advice.
Why is it people read this stuff and believe that the advice applies to them? Do you think the person who wrote it knows anything about your financial goals and the time frame over which you need to accomplish them?
Here's the problem: some investment recommendations have a shelf life of a few seconds; others a day, a week, a month, a year, or a decade.
Some traders have a very specific job to do such as hedge the price of oil, because perhaps they work for an oil company, or hedge interest rates because perhaps they work for a mortgage lender or bank. They may write about their work and offer specific commentary about the part of the market they follow.
Some investment managers build portfolios around risk/return metrics of one month; for example they might have the goal of achieving the return of the Standard & Poor’s 500 Index SPX, +1.35% with less volatility and they measure that on a month-to-month basis. They may be excellent at achieving this goal, but outperforming the S&P 500 on a month-to-month risk-adjusted basis is completely irrelevant to the personal financial goals of most investors that I know.
Some portfolios are built around one-year risk/return metrics, others around a five-year outcome, or a 10-year outcome.
Pension funds have to take an even longer term view: they must deliver income to thousands for their lifetimes. They have a time frame and investment objective that extends far beyond the average lifespan of one human.
So, do you suppose an article written by a day trader might have a completely different point of view than one written by a pension fund manager?
Just the other day someone brought me a proposal put together by an investment firm who was comparing their proposed allocation model and use of alternative investments to the way a major Ivy League endowment fund invests. What was implied was "Look, we invest the way endowment funds invest. So it must be great." The person who brought me the proposal wanted my thoughts.
My thoughts were as follows:
When you read market commentary, a proposal, or online advice you have to take a step back and ask, "Does this have anything to with my personal financial goals?"
Think about your goals. If you're 40, the money in your 401(k) or IRA has a 20-year time horizon. Your primary investment goal is maximizing the value of that account by the time you reach 60 or 65.
If you're 60 and about to retire you have an entirely different objective. Your primary investment goal is achieving a consistent income for the rest of your life.
Do you suppose the portfolio designed to achieve the 40 year old's goals might look quite different than the one designed to achieve the 60 year old's goals? Yet both seem to be reading the same online investment advice and think it applies to them.
And what on earth does the price of oil tomorrow, or the price of gold in a week have to do with achieving those goals? Absolutely nothing.