Plain Money ideas

Truly “sophisticated” investors buy and hold

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:

  1. a beginning investor
  2. moderately experienced and therefore comfortable with mutual funds, etc.
  3. knowledgeable, someone who has traded individual stocks or bonds
  4. 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.