Just Tell Me What to Invest In

Just Tell Me What to Invest In

by A. Scott White, CFP®, ChFC, CLU


When someone approaches me at a cocktail party or social event and learns I’m a CERTIFIED FINANCIAL PLANNER™, I’m often asked the question, “What should I be investing in now?”

The person who asks that question may be expecting a simple recommendation like gold, oil stocks, or bonds, but that’s not what I suggest. Instead, I tell them that it’s hard for me to recommend investments that are appropriate for them without knowing more about their situation. Then I proceed to explain how a comprehensive financial plan is created to serve as a platform upon which to develop an appropriate mix of suitable investments to address their unique needs. Sometimes, their reply to me is similar to, “I don’t have the time or want to be hassled answering all the questions in creating a comprehensive financial plan,” or, “What I spend my money on is no one else’s business.” The bottom line of their message is: “Just tell me what to invest in.”

The financial media barrages the public constantly, telling people what to invest in to avoid or capitalize on the crisis du jour. There are also well-known rules of thumb, such as subtracting your current age from 100 to determine how much you should have in equities. Or, start with a simple bias like only invest in dividend-paying stocks that yield more than the 10-year Treasury bond.

No matter how well-crafted the quick, simple answer is, it is certainly not as likely to produce a satisfactory outcome as building an investment portfolio to meet your needs. The reason quick answers rarely produce satisfactory returns is based on the simple concept that in the short term—three to five years—your cash flow will most likely have a bigger impact on the value of your investment portfolio than your security selection, market timing and asset allocation decisions.

Many of my current clients know how much time I spend explaining the difference between dollar-weighted rates of return and time-weighted rates of return. While this article is not intended to explain how the flow of money in and out of investment portfolios distorts and can result in investors making poor evaluations of the performance of their investments, I will try to explain how managing cash flows for the next three to five years is more relevant.

When individuals receive a sum of money and need to determine when to invest it, if they decide to do it themselves and invest in equities on a day the stock market just happens to be down, most likely their returns over the next three to five years will appear better than how the investments actually performed. On the flip side, if they invest in equities on a day when the market is high, the investment returns will appear worse off than actual performance. That’s just the way it is when calculating the internal rate of return, also known as the dollar weighted return. Some people will tell you to dollar cost average into the market, making equal investments spread out over a period of time to reduce the risk of investing all your money on a day when a particular market (stock or bond) is high. I often meet people who are not happy with the outcome of dollar cost averaging, because they focus on the single day the market was trading low, and wish they had invested all their money that day.

For some, my advice is that the best day to invest is the day you have the money to invest. After all, if the sum of money became available because you rolled it out of a retirement plan, it may not have an impact if you turn around and invest it back today, because you probably already dollar cost averaged in over the years. It may only affect the short term, because in the long term your strategies, asset allocation, and security selection can play a larger role. So I tend to focus on the money that can leave your account in the next three to five years. That is the money we should be able to identify and plan in advance of the withdrawals.

If one logically thinks of cash flow, one would begin by answering this question, “What is the worst thing that could happen to me or my spouse today?” I suspect most would answer, “If I died today.” In that case, does your estate have the required liquidity to address the immediate needs for cash? Will your surviving spouse have adequate investments to cover her needs for the remainder of her life? We identify and plan for these events by either insuring or self-insuring.

Now, if the worst thing in the world didn’t happen to you, what is the next worst thing? In my mind, it would be if I was disabled and unable to work. Perhaps I couldn’t even take care of my personal needs such as bathing and eating. While married I might be able to convince my spouse to provide for me. But what if I am the surviving spouse? Who’ll take care of me then? Will I have to pay them? How much will that cost? Do I have insurance that will cover the expense?

If I haven’t died or been disabled, how do I keep others from taking away my money? Hopefully you have adequate auto, homeowners and liability coverage. But you’ll also need to satisfy your obligations to the IRS, the annual culprit. How will your investment strategy be impacted by the new 3.8% surtax on investment income? And also, do you have family members who frequently request money from you because of their own inability to manage money or medical needs?

So if we don’t die or become disabled, and if we’ve minimized the risk of someone confiscating our investment portfolio, we can discuss retirement income. Critical questions to consider include: 1) Are we maximizing our Social Security benefit? If not, there’s an undue burden on your investment portfolio. 2) Have we selected the correct pension options? And 3) Should we convert to a Roth IRA or roll our 401(k) to a traditional plan?

The average person retiring today is going to live another 20 years. Yet, many still seem fixated on finding investments that are stable in value but provide very little inflation protection. The biggest risk in planning for retirement is that you run out of money. And if the goods and services you need cost more in the future, running out of money could happen sooner rather than later. How have you addressed this in your current investment portfolio?

An investment portfolio is like planting a garden. It needs time to mature and produce fruit. When we have confidence that your cash needs that can arise in the next three to five years can be met, only then can we reasonably address how your investment portfolio can be constructed. Harvesting your investments before they bear fruit makes all the work you’ve spent planting a garden futile.

Just because we expect an investment to appreciate in value doesn’t mean it is appropriate to cover any of your short-term needs. And investments that are appropriate to address your cash flow needs over the short term may not be appropriate to satisfy your long-term needs—especially when you consider you may live 20 years or longer in retirement.

So, when people say, “Just tell me what to invest in,” I have a response: “Invest in investments that are appropriate to meet your unique needs.”


A. Scott White specializes in meeting the comprehensive financial and estate needs of high net worth families. He is a Certified Financial Planner™, a Chartered Financial Consultant, a Chartered Life Underwriter, and holds a master’s degree in business administration. He served on the National Committee on Planned Giving’s Leave a Legacy committee. He is past president of the Financial Planning Association Southwest Florida Chapter, past president of the Southwest Florida Chapter of the American Society of Financial Service Professionals, past president of the Lee County Estate Planning Council, and founding president of the Planned Giving Council of Lee County. For more information, visit https://scottwhiteadvisors.com/ Scott White Advisors is an independent Registered Investment Advisor and is located at 1510 Royal Palm Square Boulevard, Fort Myers, Florida 33919; telephone (239) 936-6300. Securities offered through Raymond James Financial Services, Inc., member, FINRA/SIPC.