Financial Lessons Learned from Visiting Food Carts

I was recently visiting a friend in a city renowned for its food carts.  For lunch, rather than plonking down into a restaurant, we walked to an area with a lot of carts parked and picked up some hot and tasty food.  Of course being faced with all of the choices was intimidating, delicious curries, spicy Mexican, interesting paninis, it was almost overwhelming. Afterward, I realized that there are a number of commonalities between food cart selections and choosing investments today, and a lot of lessons that can be applied:

–Get a general survey of the landscape first — another way of saying don’t jump into the first thing you see.  It’s good to get a general overview of what’s available, how much it will cost and have a sense of comparison. For investments, it’s important to see that costs (management and sales fees) can vary dramatically from investment to investment and among different providers.

–Ask opinions of previous customers — I asked a woman waiting for her food of her recommendations and what she liked.  She was a regular frequenter to the carts and was able to give some very specific information, especially given her particular preferences.  In investments, someone who is able to give you a personal account of their experience is very helpful.  In particular, were there problems with settlement, statements, transferring your money out if you were not happy?  These are pertinent questions best applied to an existing customer.

–Don’t overdo it – for lunch, I wanted 4 different items, but of course that would have been too much (and wasteful).  Similarly, one of the errors that I have seen people make in investments is to split their investments among way too many funds and asset classes.  In many cases this doubles up on exposure unintentionally (like having a balanced and a bond fund) and prevents volume discounts.

–The risk/reward tradeoff tends to hold – for lunch, there were a number of offerings that were quite unusual, which would likely result in either one of the best, most novel foods, or something that I hated.  This risk return tradeoff for things that are less familiar applies to investments. If you are familiar with some of the riskier classes of emerging markets, commodities, or options, they might outperform the rest of the portfolio substantially, or they might result in huge losses.  It’s important to keep any additional investments in the context of the risk/return profile of the whole portfolio.

In the end of the day, for lunch, I opted for Korean tacos (Kogi BBQ), an interesting fusion food that seems to be growing in popularity. They were okay, glad I tried them, but I’m not racing back for more.  In my investment portfolio, this would correspond to REITs.  Good to have in the portfolio to get some real estate exposure, but not looking to aggressively add more.

shared at this week’s Carnival of Personal Finance