How to Solve 93.6% of your Investment Problems with One Question

I’m tired.

No punch line here, just tired.

When I sat down to write to you this week my tired was front and center. I attempted to get rid of it and then realized why not use it.

Because we are all tired sometimes.

You might be a boss, an employee, an entrepreneur, a spouse, an adult child, a parent, a friend, a leader, a follower, a working person, a retired person, a women, a man, a … and you are still going to have to take action sometimes when you’re tired.

And so I was thinking in all of my tiredness, what matters more than anything else with investing, especially when someone is tired and they still need to do the right thing.

What’s the biggest investment problem?

What’s the one thing people have to get right even if they are tired, especially if they are tired?

And since I was tired and didn’t fight it, one idea jumped to the top of my mind. It was so clear. No thinking. No contemplating. It was just there.

But before I tell you, let me tell you what didn’t jump to the top of my mind.

It’s not…

Your IQ
Your age
Your stocks
Your trading
Your options
Your income
Your rebalancing
Your covered calls
Your trust in yourself
Your trust in your adviser
Your self described risk tolerance
Or your “pick of the month” newsletter

Some of those may help here or there. But they are all inconsistent AND don’t get your future to financial certainty. And they will not help over the long run.

In order to be that one thing, that thing has to be consistent, evidence-based and implementable even when tired.

Here it is:

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The asset class your money is exposed to will determine 93% of all of your performance.

Get the asset class right and you don’t have investment problems. Get the asset class wrong and you do have investment problems.

And for the last 120 years in the United States there have only been five main assets to invest in (I separated fixed income into bonds and currencies for the sake of this conversation so people felt like they had more choices).

Fixed Income (Bonds/Cash)
Real Estate

That’s it.

There are ONLY Four places to invest your money.

And your money is always in one of these four assets at all times. There is no setting aside. There’s no fifth choice. Cash is fixed income.This revelation should be freeing to most investors but its not. Most hate it. And even call it stupid.

This paper published in 1986 clearly discovered that asset class choice was “everything.”

Everything turns out to be 93.6%. Meaning if you get your asset class right, you win. No stock picking. No covered calls. No trading. No nothing. [And for people looking needing retirement income. Guess what? Knowing what asset class is beating the rest matters even more.]

And yet when I tell this most astounding fact to some people, they… well… don’t care. And then they start talking about how much their Apple stock made them.

And when I ask them what their overall portfolio has done, the only true measure, they either double down on their Apple stock story or they say with great hesitation, “not bad… okay.”

So clearly knowing the “one thing” is not the “one thing” for many people.

Before any investment problems can be eliminated for an investor they have to be open to making a hard decision.

And as the philosopher, Ruth Chang has clearly described here, that can be hard. And when confronted with a perceived hard decision we often complicate.

People often believe great Investing comes down to knowing what stocks to buy, but actually that’s wrong. And if they just noticed it was the asset choice that determined everything (read: 93.6%). THEN the hard choice would become a little less hard.

And remember, there are only four runners in this race. A stock runner. A fixed income runner. A commodity runner. And a real estate runner.

Four runners. One choice. Less Investment Problems.

Investors who know how to measure these runners would clearly see them in the following positions the last two years (see image below).

In first place is still the stock runner (red line below). In second place is the commodity runner (dark blue line below). In third place is the real estate runner (black flattish line). In fourth place of a four-person race is fixed income (green line below).

So fixed income is in fourth place of a four-person race. And they’ve been there for over two years!!! But isn’t fixed income suppose to be safe???

Knowing what asset to be in is the powerfully simple solution to a complex problem. Knowing this one thing is how investors solve their biggest investment problem. And of course knowing when the leadership changes is part of the answer too. 

And so when you are tired, ask yourself, Do you know which line is safest and most stable to your money? Not you, but your money.

In Your Corner,

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RC Peck, CFP

P.S. Most investors can’t find the solution to their investment problem. They can’t because they don’t know how to define or even describe that problem.

And yet investors know and feel something is wrong. Something is off. Despite all they have done and have. Their families. Their houses. Their careers. Their income. Their net worth. Their advisers. Their pick of the month newsletters. Despite all the great things they have and are doing, they are still missing something.

Something is still not working. And that is what keeps them up at night.

It’s like they packed very carefully for a business trip but knew as they drove to the airport that the one thing that was most important for the success of the business trip was missing. They were getting on the plane without it. They were getting their rental car without it. They were checking into the hotel without it. They were going to the business meeting without it. And only when in front of the client did they realize, too late, what was missing.

My breakthrough sessions identify the problem and provide a solution. Most people aren’t ready but some are. Are you?

Next week I will continue talking about the undiagnosed problem. Stay tuned.