Simple Not Easy
Simple Doesn’t Mean Easy
I’ve often found that there are things in life that are simple, but not easy. Like dieting. Losing weight is simple – you just move more and consume less, right? But for most of us (and certainly speaking for myself), knowing how simple it is doesn’t make it easy. Financial planning is no different. Saving for retirement is simple – just invest more and spend less!
Financial goals are like weight loss goals – something way out there in the future. Saying you want to be 50 pounds lighter by next year is a lot like saying you want to have $2,000,000 in cash-equivalents in the bank when you turn 72. That’s a goal – an expression of your vision and values. It’s a statement of where you’re trying to go.
What makes getting there harder is a financial services industry that often puts tactics, strategies, and especially products at the front of their portfolio design, instead of your vision, values, and goals. My philosophy says that the actual product selection is the least important part of the portfolio design process. There are a lot of financial products out there – kind of like exercise equipment. Some products will move you toward your goals; others will leave you where you are. Some may even send you the wrong way. But you can’t know which are which until you have developed a set of financial goals which align with your vision, and done so in a way that satisfies your core values. Only then can we select the right strategies and tactics to accomplish those goals, and finally look for products that will implement our tactics and strategies.
Too many advisors get this backwards, selling only a small basket of products, recommending strategies that use those products, and trying to convince customers that only those strategies will help them achieve their goals. But this is like an infomercial selling a new system for doing pushups – great if your goal is arm strength, but what if your real problem is flabby legs? Buying products is simple – anybody can do it. You don’t even need a license. Knowing the right ones to buy? That’s not easy.
A recent client of mine had a million dollar portfolio that was being managed by a very bright individual with all sorts of fancy initials after his name. The portfolio was entirely invested in stocks and bonds, but to my amazement, my client was in fewer than 40 stocks, and 10 bonds! I can’t even count how many rules of prudent investing that breaks. The advisor, despite extreme intelligence and impressive titles, had a limited set of products to sell, and a compensation system that incented him to sell them.
The vision, the values, and the goals should always, always, always come first. Then you and your advisor think through strategies and tactics. Only then should your financial advisor start looking for appropriate products. Simple for me to say, but for most financial advisors, that’s definitely not easy.
Tags: broker, formula, john pollock, planning, product
