The most important job for an investment advisor is to act as a psychologist; the second most, is a teacher. The experience of teaching public school for over 20 years has greatly enhanced my ability to explain complex investment theories to my clients.
I learned the value of routine, procedure and consistency when teaching middle school children. There were no surprises, they knew what to expect each day and the daily routine gave them comfort. This process was designed for the long term. Halfway through the year, I did not have to be in the classroom the first 5 minutes and the students would be on task due to the repetition of this structure on a daily basis.
Homework was given by unit, 2-3 months in advance, with due dates attached. Test and quiz dates were posted before the material was even covered. This philosophy was standard operating procedure throughout the school year.
Most importantly, I constructed a lesson plan for each day which covered what I wanted to accomplish. Less was more. Simplicity was always the default choice. There were 3-5 key words for the day, an introductory activity, main body lesson and a concluding question to sum things up.
42 minutes is not a long time. Comprehension of small chunks of information works; information overload leads to disaster.
Here is my lesson plan to teach investment novices the benefits of implementing evidence based investing concepts into their portfolios:
Learning Objective: Explain the main concepts of evidence based investing and demonstrate how they could be applied to an investment portfolio?
Do Now: What investments do you currently own and why do you own them? How much do they cost? (3 minutes)
(Lots of blank stares)
Motivation: Watch Carl Richard’s video and explain the concept of The Behavior Gap? (5 minutes)
Key Terms: (18 Minutes for all the terms)
Evidence Based Investing: Applying data, rather than stories or emotions, to pick investments for the long term.
Fee-Only Fiduciary: A fiduciary is someone who looks out for your best interests regarding investment advice. Fee-only fiduciary advisors are paid only by the client. They do not collect sales commissions or sell high-fee products. Evidence shows low fees have the most influence over positive investment returns over time.
Investment Factors: These are the components of evidence based investing. Studies have proven investments in small, very profitable companies that are considered undervalued, compared to their earnings potential, do the best over long periods of time.
Diversification: Own a little bit of everything, compared to making one big bet which you could lose. Investment formula: U.S. Stocks + Foreign Stocks+ High Quality Bonds= Diversification.
Index Fund: Buying markets/asset classes instead of hiring a person to try and pick the best stocks to beat the market. Example: Owning the entire group of small company stocks instead of trying to pick the top 100. Over time, it has been proven most people cannot beat the entire market because of fees and competition.
Main Activity: Based on the above, write a paragraph explaining why having a sound investment philosophy, using evidence, is a better strategy than worrying about things you cannot control. Make sure you include the key words in your paragraph. When you are done, share your work with the person next to you and discuss your arguments. (15 Minutes)
Conclusion: Why do you need a plan for investments and what are some of the bad things that can happen if you don’t have one? (2 Minutes)
Homework: Share today’s lesson with as many people you can find. They will thank you for this later. It is O.K. not to share this with people you don’t like.
Most likely, I would not complete this lesson in the time allotted. I would accomplish my main goal of explaining the importance of a sound investment process over a random outcome.
This stuff is not easy. Most people have a middle school level of financial literacy. There are many worse plans than structuring an investment conversation around a few concepts, interacting with people in an interesting way, chunking the information and, most importantly, showing them how to apply what they have learned.