Life is a series of things: things you know will happen, things you hope will happen, things you hope will not happen. Which of these most accurately describe your financial life? On measure, I would submit that based on hundreds of real-life scenarios, most individuals who come to us focus on the middle category, the “hope will happen” strategy.
Turning Dreaming Into Doing
Among the definitions for hope are: “a feeling of expectation and desire; wanting something to happen”. Hope standing alone without action, however, is closer to delusion. Just because you “hope” something will happen means little unless you actually do something to move closer towards that reality. This is where we see most problems: not so much in the “hoping”, but rather in the “doing”.
Those among us who are parents can recall the toddler stage where, in the mind of the child, everything in her world appears to revolve around her. As adults, we realize that the universe, (including the financial markets), does not re-order itself to suit our desires. Several years ago, we worked with a client who argued that since he “needed” a certain investment return, it should be so. Never mind that the reason the “need” existed was years of under-saving. We can help clients harness the power of the markets, but we can’t fundamentally change them.
We Can Control Inputs, Not Outcomes
Inputs, what we actually do, are among the things that we can control and where we can obtain the best results. How much you save towards your long-term goal is likely the most important input. Many years of under-saving cannot be easily solved by higher investment returns. Constantly trying to outsmart the markets can’t be remedied by a short period of accepting market returns.
Time, an input that works in your favor during the asset accumulation or “Run-Up” stage of life, works against you when you have to play “catch-up” later in life because of behavioral mistakes. Think of it this way: It’s like leaving for an appointment 20 minutes late, hoping to make up the difference with faster travel only to run into a massive traffic jam. The lone input that was fully controllable was the time that you departed; the other variables “just happened”.
It’s easy for investors to overly focus on a single metric, investment return, when that is actually an outcome derived from the investment allocation and behavioral inputs. For those in the Run-Up or Wind-Up phases of life, the most important metric is your savings as a percentage of earnings. For most individuals, this savings percentage needs to be in excess of 15% of income, (and depending on the timeframe, this could be 20%), including retirement plan savings. If this savings input is not present, investment returns likely won’t solve the problem.
Life and Money flow together, not apart. Our aim is to provide clients the right advice in the right way so that it will be acted upon. Ready to make some changes? Ready for a real conversation?