The vast world of available financial products can be daunting for those in the industry and downright overwhelming for the uninitiated. There seem to be a million TLA’s (Three Letter Acronym’s), 100 different account types, and what appears to be an ever-changing sea of rules for contributions and timing. While it can seem overwhelming, once you strip out the alphabet soup of technical jargon, it is actually relatively simple to understand. The key is understanding two truths. One, there are no magic beans. Meaning, all pros come with cons. Two, all financial institutions are trying to solve the same big problem. How can I provide value to our clients and still stay in business?
Here are some insider tips for most financial products you find today.
For over a decade I lived in the manufacturing world. Every day, the manufacturing team is solving the same 2-3 problems. How can we get quality up, how can we make this faster, and my perennial favorite; how do we suck every penny of cost out of the product.
The daily joke always centered around what we called the “Good – Fast – Cheap” triangle. The customers (and our bosses) always wanted the highest quality product available, they wanted it two weeks ago and if it cost more than $1 it was too expensive. The typical reply to solving the conundrum was, “I understand, but remember, you can only pick two of those.” Meaning:
Once you strip out the alphabet soup of account types, you typically find a variation of that same triangle.
When you put your money somewhere, you are always dealing with a financial institution on the other end. It may be a bank, a brokerage house, or an annuity company, but at the end of the day, they are all just financial institutions manufacturing “products.” Just like an actual manufacturing company they are working through their own version of the Good-Fast-Cheap Triangle.
Here is what the financial triangle looks like. Instead of Good-Fast-Cheap, think about their world (and your own) in terms of Safe-Liquid-Growth. The same “pick two” rules generally apply. For example:
To land this analogy, let’s look at a couple of examples. Let’s take a savings account, for example. A savings account has very high liquidity and is relatively safe from loss. However, you are not expecting 47.5% rates of return on the money each year. Conversely, if you put your money in Apple stock, you have higher growth potential and can sell and get your money out at any time, but it is not guaranteed against loss. Or maybe you are exploring products with good upside potential and some “bumpers” against loss in the market. In return for that magical combo, you should expect the company will want to hold on to your money for a few years. And the key is every financial institution is working with these same basic tradeoffs.
The final piece of the financial product triangle is understanding your own triangle, both emotionally and practically. How important is liquidity vs. growth potential? If you can have growth with some safety measures, how much liquidity are you prepared to sacrifice. Once you understand your own needs and the institutions’ realities, it becomes a little easier to think about the broader question of diversity and “buckets.”
If you need help processing through the emotional and practical side of the triangle as well as finding the right balance and understanding the tools at your disposal, we are always here to help.
Eric Alexander
Benchmark Income Group | Mobile: 972-822-7406 | Eric@BenchmarkIncome.com
Registered Representative and Investment Advisor Representative of and securities offered through OneAmerica Securities, Inc., a Registered Investment Advisor, Member FINRA, SIPC. Benchmark Income Group is not an affiliate of OneAmerica Securities and is not a broker dealer or Registered Investment Advisor.
Do not transmit orders regarding your OneAmerica Securities, Inc. account via e-mail. OneAmerica Securities, Inc. and Benchmark Income Group will not be responsible for carrying out orders and or instructions. This e-mail message is intended only for the use of the individual or entity to which the transmission is addressed. Any interception may be a violation of law. If you are not the intended recipient, any dissemination, distribution or copying of this e-mail is strictly prohibited. If you are not the intended recipient, please contact the sender by reply e-mail and destroy all copies of the document.