I recently saw a questionnaire from a major financial firm. The idea was good — get the client to fill out this form and then the adviser can make suitable recommendations. But I saw one multiple-choice question that was sadly lacking one answer. Paraphrasing (to avoid copyright concerns), it asked whether I was:
- a beginning investor
- moderately experienced and therefore comfortable with mutual funds, etc.
- knowledgeable, someone who has traded individual stocks or bonds
- someone sophisticated, who has “traded stock options, exercised stock rights and warrants”
Do you see what’s missing? It’s an answer (5), “someone so sophisticated that I know how stupid it is to engage in answers (3) and (4).” The more you know about investments, the more your understand the power of buying and holding index funds.