• Hannah Boundy

Plan First, Invest Second

One of the things I love about working for Cedarstone is that we are a plan first, invest second company. It may sound like an insignificant detail but it’s one of the things that sets us apart from other advisors and, I believe, is the best approach for our clients. The idea is that you can’t invest your assets well if you don’t have a plan. So many financial advisors out there try to attract clients by selling investment ideas and, don’t get me wrong, how your advisor invests is incredibly important. But a good portfolio isn’t one that’s wildly aggressive and keeps you up at night for the sake of potentially generating “more.” A good portfolio is one that meets your needs both from a risk and return standpoint.

I was looking through the financial literacy section of the library the other day and it struck me how many books are written from the perspective of “more.” How to have more, how to make more, how to do it quickly; sometimes overnight. The problem is, “more” is never satisfied. The finish line is constantly being moved. You can never arrive at “more” and I think a life spent constantly seeking “more” sounds exhausting. Instead, I believe in financial planning from the perspective of “enough.” How much do you need to meet your financial goals? How much do you need to send your kids to college, buy your dream home, or retire? How much is enough? When we approach planning from this viewpoint, suddenly the goal is accomplishable. We can invest for those goals. We can build a plan and a portfolio that will help meet your retirement needs once we have determined what those are and suddenly investing isn’t this crazy, volatile task that keeps you up at night but it's a task that has a guiding directive.

Having enough doesn’t mean you have to settle. As my coworker puts it, we don’t want you to have to exist on peanut butter and jelly in retirement and we don't want you to settle for subpar returns. Maybe you want to take exotic trips or buy a country club membership and golf every day in retirement. You can have luxurious goals. You just need to have tangible goals. “More” is not a tangible goal. We can plan and invest for luxurious goals. We can’t invest for “more.” We can try, but having read the research and seen it attempted firsthand, I am convinced that investing for more is one of the worst ways to invest and often causes you to actually end up with less. For starters, it’s hard to predict the future. Investing for returns alone means constantly trying to find the hot new thing, but because we don’t have a crystal ball it's often impossible to know what that is. 3D printing may very well end up being a big deal, but which company is going to really excel in that space? I don't know. Starbucks is a huge player in the coffee business but 30 years ago there were other coffee shops out there and no one knew which one was going to change the face of coffee.

Secondly, investing for returns usually results in a lot of trading and a lot of trading is actually one of the biggest detractors of performance because it is expensive. Investors who are constantly chasing the next big thing because they want more do a lot of buying and selling and each one of those trades cost money. In the end, you have to find a lot of winners to pay for all of those trades.

Instead, I propose that we be smart investors whose investing decisions are driven not by chasing an unreachable goal but by meeting the needs of tangible goals. Let’s state what we want to achieve and build a plan to meet those goals first. Let’s diversify our investments so that we win over time and at a risk level that we can handle mentally and emotionally. If you’d like to learn more about planning first and investing second, I invite you to read more about what we believe here.

*This article was originally published June 15, 2017 on cedarstonecupcakeclub.com.

#planning #investing #portfolio #clientadvisorrelationship

DISCLOSURE Information on this website and others should be used at your own risk. Past performance does not guarantee future results. Securities investments involve risk; returns in such investments vary and may involve gain or loss. The materials and content herein are not a substitute for obtaining professional tax, personal financial planning, or other relevant financial advice from a qualified person or firm. For full disclosure click on the disclosure link at the bottom.

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