Making the Mistake of Chasing the Best Investment

You make good financial decisions only within the context of your goals.

This may seem obvious, but think about the amount of time and energy spent trying to find the "best investment." Magazine covers are devoted to it, and books are written about it. There seems to be an entire industry built around this wild-goose chase.

But the reality is that there is no such thing as the best investment.

The idea that there is some mythical investment that we can label the best, without first considering how it fits into the context of your life, is crazy. It's like getting into a debate with a friend about whether to drive or fly before you've even decided where you're going. How can you decide on the transportation before you determine the destination?

This is true for all financial products. Life insurance, mutual funds, and even bank accounts can be judged only based on how well they help you reach your goals. Your goals are unique. So what might be right for you could be a disaster for your neighbor.

Instead of spending so much time searching for the best financial product, we're much better off taking the time to reflect on what is really important to us and then aligning our use of capital with those values. What good would it do to find the mythical best investment and end up with a bankrupt personal life? David Brooks highlighted a similar issue: Most of us are focusing on the wrong things if our goal is happiness.

So rather than reading the latest list of the "10 Best Investments for Every Investor," try asking yourself some questions to discover what's really important to you. To get started, I suggest you take a look at George Kinder's three questions about life planning.

I have to warn you that this can be a painful process, because it forces you to think about things outside the confines of a spreadsheet. Be patient with the process and realize that in the end it's not about the money. It's about your life.

A version of this post appeared previously at The New York Times.

Carl Richards is a financial planner and the director of investor education for the BAM ALLIANCE, a community of more than 130 independent wealth management firms throughout the United States. Visit Behavior Gap for more of Carl's sketches and writings.

The Motley Fool has a disclosure policy.

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  • Report this Comment On January 31, 2013, at 10:53 AM, dumbestinvestor wrote:

    I love the article's point which is that there is more to life than money. However I have to disagree with the idea of not trying to find the best of the best, I am not going to risk all in the, "Mythical Investment" stock, I am going to stay diversified in everything. I am going to do my homework and do the best that I can in picking winners as I'm sure many do.

  • Report this Comment On January 31, 2013, at 11:22 AM, SkepikI wrote:

    This is a little late for me, but I hope not for you, dear reader. I still got something of value out of it even though this is my own basic philosophy (missing one element- more later). I came to this approach deaf dumb and blind, figuratively speaking after several of my friends and family passed away in a 4 year space some very close to my age. When you recognize its highly probable that you have more money than time, (no matter how much you have) a thoughtful response is very similar to those 3 questions.

    I am still engaged in the "treasure hunt" of discovering things I wish to experience, some of them quite cheap. A couple of them actually produce $ although not many.....still I find I can "afford them" if I am honest about my expectations and the end result. My Investment activity but more important my TIME takes me in directions I had not expected, BUT for me I add one more element to the Author's picture (you don't have to, I find I WANT to) and that is return. Doesn't have to be the best, but sometimes unaccountably, its pretty good! And I always remember return is the rocket fuel that sustains and grows desirable activity. No Returns? Well OK, if you like, but sooner or later it runs out of gas, and that activity stops. I find it more challenging and more useful to me if my investing helps create useful activity that does not die out.

    A quote from Cornelius Vanderbilt's memorial is stuck in my brain (and I can never recall who to attribute it to) when one acquaintance asked "How much did he leave?" another responded " I believe he left it all" not the usual way to recall this undeniable fact, but it works for me.

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