We know that investing can often feel like a black box and a daunting undertaking. But believe it or not, you don’t need to gain all the expertise or skills of a financial advisor in order to have a meaningful conversation and actually drive decisions about how your money is invested.
When people think about investing, they often focus on the process of selecting funds. That’s where you hear a lot of the financial jargon like equities, fixed income, mutual funds, ETFs, exposure, diversification, etc.
However, the most important thing in investing is what results from that selection process – a curated selection of funds that becomes your portfolio. Or, we like to give it a friendly name and call it a “Pass”.
Each of your financial goals may have its own Pass or some goals may have multiple Passes associated with them.
What is a Pass?
You can check out our previous post where we talk about the concept of Passes and how they can be used for more effective financial planning conversations with financial advisors.
But, to give you an easy way to think about Passes, we like to think about them almost like the cards in your wallet. You likely have multiple payment cards in your wallet, whether those are credit, debit or gift cards.
For each purchase you make, you select one, or perhaps multiple of those cards to pay for that purchase.
Similarly, you can imagine that you have a financial wallet of Passes that are used to fund your goals. When you go to fund a particular goal, you will select one or multiple Passes to do so.
All together, your goals and their respective Passes represent your holistic financial picture.
Choosing the Right Pass
You can leave the process of putting together a Pass to the experts. The key question for you to help answer is whether a given Pass is the right one for your specific goal.
There are three characteristics of a Pass that should be considered – points gained, points at risk and investing theme. Let’s see how this works.
For a quick reminder on how financial planning can be done using a points system, check out our previous post describing the process of planning with points.
Then, you can discuss the following questions with your financial advisor to help determine if a Pass is the right option for you:
1. How many points does this Pass add to my plan?
Every Pass, like the other ingredients in your plan, is going to earn you points toward your goal. This is because investments have the potential to help your money grow in the future.
How many points you could earn depends on what is in your Pass.
For example, the more stocks in your Pass, the more points you could earn. This is because stocks generally have the potential to go up higher in value – and grow your money more – than bonds.
2. How many points did this Pass put at risk?
Although Passes could earn points for your plan, every Pass will put some points at risk. This is because investing is uncertain. No one knows if investments will go up or down tomorrow or by how much.
Therefore, to determine if a Pass is the right fit for your plan, it’s important to understand both the number of points it can earn and the number of points it puts at risk.
Everyone will have a different view on what is a ‘good fit.’ For some, getting as close as possible to their goal is most important and worth putting more points at risk.
For others, they may prioritize certainty and wish to put as few points at risk as possible even if it means sacrificing some points toward their goal.
There’s no right answer! It’s up to you to determine what is most important and it may even change between your goals.
3. Does this Pass focus on investments that match my preferences?
The last characteristic of a Pass that can help you make a decision on whether or not it’s the right fit, is the investing theme.
When you ultimately choose a Pass and invest, you are actually buying something – funds. You want to ensure that what you buy aligns with your values and preferences.
Just like with other purchases you make, investments can help you support the things that you value, whether it’s environmental sustainability or global connectivity or the tech industry.
You can choose a Pass that not only helps you get closer to your goals but also does so in a way that aligns with your priorities. And, these themes can help you identify experts who care about the same things that you do.
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You should feel empowered to have investing be a part of your planning conversations without needing all the jargon. With these three questions to ask about a Pass, you will be armed with everything you need to help influence decisions about how your money is invested.
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