A man inherits a million dollars and walks into a bar. At the bar sits a realtor, an insurance agent, and an (honest) investment advisor.
The man walks up to the bar and announces to the bartender, “I just inherited a million dollars from an aunt I didn’t know I had, I’d like to buy these gentlemen a drink.”
The bartender brings the man a beer, and the man says, “Well … I guess I need to invest this money.”
The realtor says, “If I were you, I would buy investment property. There is no better investment than real estate. If you qualify for financing, you might even be able to use leverage to get a higher cash on cash return.”
The insurance agent interrupts and says, “Well you might get a great return but what if you can’t find anyone to rent? With insurance, you will have a guaranteed return. You will never have to worry about getting your money back.”
The (honest) investment advisor remains silent.
The man turns to the investment advisor and says, “What would you do with this money?”
The investment advisor answers, “This is never an easy answer. Real estate investing is profitable for some people, particularly those who like to manage the properties, but it can be expensive if you need a property manager and there is never a guarantee that you will be able to rent. The long-term returns of real estate investing are not as good as investing in other securities. You can do a little better if you manage yourself, but do you want to be in the property management business? “
He continues. “You might need insurance but I wouldn’t recommend it as an investment. Because I worked for the corporate headquarters of a major life insurance firm on Wall Street, I can tell you that insurance as an investment is really just a way of transferring your wealth from your beneficiaries to the insurance firm.”
The man turns to the investment advisor and says, “Okay, so now you have told me what NOT to do, but what should I do?”
The investment advisor says, “I can’t tell you what to do, but since you ask, here is my recommendation. I would make you take a risk tolerance assessment to learn how much risk you can bear. Then I would tell you that based on this amount of risk you might lose anywhere from ¼ to over ½ of your investment at some point but, that at some point 10-20 years from now, you would have substantially more wealth.”
The man says to the investment advisor: “So you don’t have any inside tips or special tricks?”
The investment advisor says “I have been studying investments for over 30 years and try to keep up but no. It’s no different than any other choices you make in your life. If you want good health you have to take care of yourself. If you want your family to love you then you should treat them well. If you want to be happy you have to make good choices. The good choices are always the hardest ones, the ones you don’t want to make.”
The man asks, “Is that all?” The honest investment advisor answers “No. While we are working toward your strategy other (dishonest) advisors posing as investment advisors will offer you promises, guarantees, and strategies that would have worked better if done in the past (but that the dishonest advisor didn’t do) and will most assuredly advise you to invest in products that are good for his firm but not necessarily for you."
The man asks, “Is that all?” The honest investment advisor answers. “Yes, see this is an ongoing relationship. Investors leave half of their returns on the table because they try to find ways to get a quick return. Whether its stocks or bonds, investors literally trade away half of their wealth. My main job is to prevent you from doing this and this job never ends.”
The man asks, “Is there anything else?” The honest investment advisor answers “Yes. You will constantly face difficult life decisions. I am here to help you make the right ones. But they won’t always be the easiest ones.”
The man asks, “Is there anything else?” The honest investment advisor answers. “No, for now, but now is only this moment. Now will change. Something will always come up."