If All You Have Is a Hammer, Everything Looks Like a Nail
A financial warning.
Posted Feb 15, 2017
We are surrounded by articles, advertisements and enticements prompting investors where to find the best yield, the best returns, the best investments, the best everything. And who doesn’t want the best?
It seems you are always “a mere click away” from finding the highest yield on a money market fund, the lowest rate on a mortgage, the highest dividend on a stock or fund and the fastest route to financial freedom. The recommendations are all there for you to see, but you need to stop and ask yourself whether a particular option really is right for you—and why.
Whenever you’re evaluating a particular financial option, ask the following important questions:
- What are the risks involved in this strategy?
- Who is making the recommendation, and what’s in it for them?
- What does it cost? (Don’t be fooled, nothing is free.)
- Are there any restrictions, limitations or other clauses or penalties for accessing, modifying or withdrawing from the offering?
- Are there legal claims against the company making the offering?
- How does this “solution” align with your risk tolerance, time horizon and, most of all, values?
Obtaining meaningful financial advice and solutions is certainly possible, but you must begin with obtaining clarity of your goals and sufficient knowledge to match those goals with an appropriate path to achievement. Think: Ready—Aim—Fire! Too many consumers use a Ready—Fire—Aim approach, finding a seemingly great product or offering and then creating a reason why it matches their needs.
Take, for example, the concept of buying a deferred annuity. Companies who sell these products will tell you all about the living benefits, the death benefits, the long-term care benefits, the potential return benefits, the tax benefits and the guaranteed benefits. The list goes on. But hidden in tiny fonts or referenced by a symbol, index, or disclaimer (and discouraging consumer attention or question) are the costs, fees and restrictions. Although an annuity contract may make sense for some; it certainly isn’t the solution for everyone in every situation, as the advertising might suggest. You know the old saying: If all you have is a hammer, everything looks like a nail.
So, what do you care about? Why is reaching that goal vital? What are you willing to do to make it a reality? How does it align with your values and life goals? This is where you start—answering these questions rather than beginning with a solution in search of a question. The fact is, the financial services environment is a minefield of cross-purposes, agendas and opinions. The industry, with few exceptions, is built on selling products to consumers. Unfortunately, real information is hard to find, and more importantly, discussions about their appropriateness to your situation is even more rare. Sure, that fund pays a high yield or has more stars—and hey, who doesn’t want higher yield or better return?—but there’s always a cost, a risk and more information that needs to be extracted before you know it’s right for you.
Start with knowing your objectives and asking all the relevant questions. Don’t stop asking until the answers you receive are complete, understandable and aligned with your life’s goals. That’s your job!