Misdirection
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Misdirection
What if Wall Street has you looking the wrong way, focused on the wrong thing?
Happy Wednesday!
What’s your measure of success in financial and retirement planning?
Is it:
Achieving a certain net worth?
Beating the investment markets?
Being more successful than your childhood best friend?
Saving 50%+ of your income each year?
Or is it simply the pursuit of “more”?
The founder of my parent firm, Wealthcare Capital Management, wrote a lengthy paper many years ago. It’s titled “Measuring Temperature With a Ruler".
If you’re interested, let me know and I can share a copy.
It’s 40 pages long and fairly technical, but I believe the message is important.
For instance, the subtitle of the paper is “Is Your ‘Wealth Manager’ Really a ‘Return Manager’ in Disguise?”
Let me attempt to sum up the 40 pages for you.
Investment returns don’t matter. You can’t spend percentage returns at the grocery store. All that matters is your wealth in dollar terms over time. And you can only see investment returns in the past… after they’ve already happened… when you can’t do anything about them. They’re literally yesterday’s news.
If an advisor asks you to complete a questionnaire or online tool to determine you “risk tolerance” then beware. This means they’ll likely recommend investments to make sure you experience the full amount of your so-called tolerance for risk. Just because you might have tolerance doesn’t mean you want to invest in a “tolerable” manner, does it?
Just like a large corporation’s pension plan, you can be either under-funded, over-funded, or in balance relative to your future goals and aspirations. Your financial decisions should be made in this context and no other.
While no one can predict the future - nor should you even attempt it - we can see how your financial and retirement plan would have held up in the past. We can also simulate thousands of possible futures to see how much comfort and confidence we can have in your plan. Through all types of market and economic environments. Focus on the things within your control. And rigorously stress-test everything else.
All is not lost. There is a better, simpler way to manage not just your investments but your financial and life decisions, not in the context of what the market’s doing. But in the much more important context of whether or not you’re on track to live the life you want to.
Of course, I’m not doing justice to this paper or its assertions in the bullet points above.
Just know this:
Your money should be simple.
Your decisions about your money should be made in the context of living your best one and only life. Not in the context of your portfolio performance for the last 12 months.
Risk and uncertainty - while impossible to eliminate - should be reduced as much as possible in all facets of your life. Instead of setting you up to experience your “risk tolerance” you should instead think in terms of only taking “necessary risk.”
I could go on…
I mention this paper and all the things above because Wall Street and many salespeople masquerading as financial advisors are trying to convince you of the exact opposite.
See if this sounds familiar:
Investing is complex and difficult
Let’s focus on how your portfolio is doing relative to a comparable benchmark return
Taxes? That’s for you and your CPA to figure out
Let’s look at how your portfolio did over the last quarter and see if we need to make any changes
Trends and momentum are important factors in investment management
How can I give you a portfolio recommendation unless I know your “risk tolerance”?
Regardless of your circumstances it’s never a bad idea to save more, work longer, take more risk, and spend less. Also, do you know how much your daily Starbuck’s is costing you over the next 40 years? 🤦♂️
Our firm’s economists & analysts think XXXXX so we should do YYYYY
A few years ago, I wrote about Financial Sleight of Hand.
And I don’t feel any different today. Call it misdirection, sleight of hand, or maybe something even more sinister…
Just know that it doesn’t have to be so complicated.
Or expensive.
Or tax inefficient.
Or focused on all the stuff that matters so little, and over which we have little-to-no control.
Whether you’re tackling your financial and retirement planning on your own or working with an advisor, just please make sure you’re focused on and measuring your progress based on your life; not your money.
And also make sure you’re using the right tool to measure how you’re doing.
Hint: it’s not your portfolio performance report or even your net worth statement.
It’s whether or not you’re comfortably and confidently on track to achieve what’s important to you as well as what’s important to the people and organizations you care most about.
Otherwise, you might just be trying to “measure temperature with a ruler.”
And that will lead to some false readings. And bad decisions.
Thoughts?
Hit reply and let me know.
Links & things
Estate Planning Basics
Just last week I recorded a video conversation with Michael Salazar from Trust & Will. You can check it out below. We covered the basics of estate planning, the benefits of which I covered in last week’s letter.
If you’re interested in discussing your estate plan or if you’d like to get started creating or updating your estate plan with the help of Trust & Will, you can save 10% on their pricing by clicking right here.
A New Type of IRA Account
About 10 years ago, I had a conversation with Kathleen Rehl. She’s a financial advisor. And as a widow herself, is focused on serving widows and widowers. In fact, you can see our conversation here:
I apologize for the poor video quality, but thankfully things have improved over the last decade…
Kathleen recently wrote an article where she covers a new type of IRA - a Legacy IRA - that was established in the most recent retirement-related legislation.
Give her article below a read and I’d be curious to know what you think about this new approach to retirement income planning that also has tax and charitable benefits:
Thank You!
I’m grateful to have you as a reader.
If you have any questions or an idea for a future newsletter, blog post, or YouTube video, I'd love your input.
Just hit reply - I read (and truly appreciate) every email you send.
Until next Wednesday,
Russ