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Clarity Financial Planning Services is an advocate for your financial future who takes a holistic approach to your needs and goals.

Investing in Stories vs. Creating an Investment Strategy

wall streetPerhaps you are hesitant about investing and we can understand why. As we’ve recently discussed, it can be difficult to distinguish good financial planning advice from bad. You take a risk when you invest your money…but you take another kind of risk when you ignore the way investing can help your money grow.

In a Washington Post column, Barry Ritholz, chief executive of a quantitative research firm, wrote about how everyone loves a good story and this includes Wall Street. At times, we try to fit business and investments into narratives that include villains, heroes, and fairy-tale endings. “Story stocks” is term used by Wall Street brokers to describe investments that have a great tale connected to them, such as “A new CEO is bound to turn the company around.”

If the talk turns out to be true and investing in a compelling story ends up being lucrative, that’s wonderful. But if not, then what? Ritholz writes about “…a natural tendency to want an emotionally satisfying tale — and to make investments based on that — despite times when the actual data may be telling you something different.”

This is why we suggest working with a Fee-Only financial planner on investment strategy. A financial expert can advise you before you get carried away with the latest stock that everyone says is sure to yield great returns. A financial planner can also keep you on course because when you have someone to keep you accountable and remind you of your overall financial goals, this can prevent you from being distracted by investment fads.

A Fee-Only financial advisor can also help you see the bigger picture when the story you hear everywhere is one of fear because as much as we are charmed by a “a sexy new product launch” or a miracle drug, we can also be frightened into inaction by terrifying predictions. Working with a Fee-Only financial planner can help you invest for growth and not in a well-told tale.