10 Things I Think I Think About Money

1.       I think most of us believe we want it in order to provide for our loved ones.

2.       I think we often spend it in ways that aren’t truly in line with “providing”.

3.       I think we don’t appreciate how rare our money “problems” are in contrast to how most of the world’s population lives.

4.       I think we fail to understand the true cost to our health, attention, and relationships of what it takes to earn it.

5.       I think most people do not believe that they control their level of happiness about it.

6.       I think we don’t want to admit our ignorance about how the financial world really works.

7.       I think we are too quick to believe people who make money selling their ideas about it.

8.       I think most of us expect the wrong things when we invest it.

9.       I think we build lives around it rather than the other way around.

10.   I think when managed, valued, and understood correctly, it can be an important part in living a happier life.

I Was Eavesdropping

I probably shouldn’t admit this, but I had a chance while at a coffee shop to eavesdrop on a sales pitch delivered by another investment advisor to a prospective client and I took it. After the requisite 10 minutes of get-to-know-you small talk with the color brochure placed conspicuously on the corner of the table, the conversation segued into the “what are you looking for in the management of your investments?” question.

Unfortunately, I think the client gave the most common, but the most wrong answer: “You know, I really am not an investment guy. I just want once or twice a year to have an update delivered to me that shows all of my investments on one page. Maybe showing me how much they are up or down, and showing a track record of growth over time. And since I’m conservative I’d really just like something that keeps up with the market.”

The only person who loves that reply is the advisor. How hard is it to deliver a summary of investment performance on a single sheet of paper? How hard is it to print color graphs and stick fancy logos on them? How hard is it to send an update and then put the client file on the shelf for another six months? How hard is it to try and “match the market”? Not very hard at all and I guarantee that anyone with even six months experience in this business can deliver what the client said he wanted.

A better answer by the client would have been this: “I am looking for my investment plan to directly relate to the happiness I’d like to feel about money right now. I am looking for my investment plan to be tied to my goals of life experience, to my sense of financial responsibility, and to the relationships with people whom I care about.  I am looking for my investment plan to help me make daily decisions about my money and my priorities. I am looking for my financial reports to be translatable from numbers into qualitative improvements in the quality of my life. I am looking for a gain to my financial knowledge, not just information.”

Seeking expertise on the execution of an investment plan is wise. Leaving open to interpretation what you want and expect from the advisor you hire is not.

Common Character Traits of the Rich

I read an article today about research done on common personality traits of the financially “successful”.  They were listed as:

1.       A propensity to plan correlated with a higher than average accumulation of wealth regardless of annual income.

2.       Financial literacy regardless of math confidence correlated with a higher accumulation of wealth.

3.       Having feelings of powerlessness ( as reported by the study’s subjects) correlated with a lower accumulation of wealth.

4.       Conscientiousness and emotional stability were most directly linked to a greater accumulation of wealth.

Each of the four traits above demonstrate the benefit of living with purpose and intention.  Whether you want to be happier at work, or do better with your retirement saving, or be a better spouse, you’d better pay attention to the list above because not in the top 4 is “cross your fingers”.

I often meet people extremely frustrated with their financial situation and I see just as many people with low incomes report frustration as I do people with high incomes.  In fact, those with higher incomes tend to report even more frustration because they feel they’ve let their good opportunity “slip away”.  Conversely, I get to meet people who feel extremely confident in their financial position regardless of how much they make.  When I ask them why they feel comfort and contentment almost without exception they say “because we’re living just as we’d planned”.  Perfect!

People ask me all the time for financial “tips” and for ways to save more for retirement, for college, etc.  And while in the middle of everyone’s unique financial plan there lies a lot of important details that require examination and hard work, I believe the universal “tip” for financial wellness is to create a long-term habit of doing everything on purpose.  Purposefully manage your career.  Purposefully be the parent you want to be.  Purposefully stay healthy.  Do those things and your finances cannot escape the power of your control if you choose to exhibit it.

So look at the list above again and think about how planning, how educating yourself with the realities of financial engineering, how feeling empowered, and how awareness and empathy of the world around you can make you more capable of accumulating and acquiring the kind of life (both financially and otherwise) that you want. 

Tax Management In Your Investment Portfolio

Many people are once again starting to see some of their mutual funds pass along taxable income.  Such is the “benefit” of recent improvements in the returns of various markets.  Some of us haven’t seen taxable income from our investments for awhile so it’s time again to review what it means to exercise good tax management in an investment portfolio not already in a tax-deferred arrangement (IRA, 401(k), etc).

Right now if your investments are held in a taxable account you might be exposed to paying tax regardless of whether or not you took money out of your account.  This could be a bummer because now you might actually have to take money out in order to pay the tax , reducing the amount left in the account to grow into the future.

So good tax management tries to avoid or reduce this problem by doing three things:

1.       Timing of portfolio changes.  Good tax management models pick appropriate times to buy/sell securities so that it doesn’t lead to a gain.  For example, bad tax management might rebalance your portfolio on a quarterly basis no matter what, possibly triggering a gain to you and exposing you to tax.  Good tax management would say STOP with the rebalancing merely because it is the start of a new quarter if it would create an unnecessary tax liability.  Good tax management is more sensitive to timing the intricate interior changes to your portfolio. 

2.       Tax-lot activity.  Basically, tax-lot activity is a portfolio-management function that searches your entire portfolio to try and harvest any losses (which reduce your tax liability) to counter any taxes caused by growth.  This obviously requires very detailed awareness of all the elements of your portfolio on a regular (i.e. constant basis).  Good tax management follows a disciplined search for opportunistic offsets to tax liabilities.

3.       Choosing tax-advantaged vehicles.  Good tax management looks for acquiring underlying securities that might be less likely to create taxable gains.  Choosing stocks and funds that don’t pay dividends, that don’t produce realized capital gains, that aren’t subject to federal taxation, are examples of how to create a good tax-managed portfolio from the ground up.  Good tax management selects specific investments most likely to be tax-friendly.

The overall goal is to build the entire model around protecting your investments against tax without eroding the return performance of the portfolio.  Careful selection of the right asset managers who are specifically good at tax management is absolutely critical.  Like any specialty in any industry it takes years of proven performance to demonstrate a real talent.  You can’t just “wing it” when it comes to good long-term tax management.

Is My Passion Good Enough For You?

Investments and estate planning and tax management can be very boring.  I think I’ve got some skill and understanding in many different areas of financial planning and counsel, but it isn’t a passion.  But what IS a passion, and what has become a personally-transformative realization is that I am extremely passionate about not missing out on living the way you truly want to live.

Number one on nearly every list of excuses as to why people aren’t happy, or don’t pursue bucket-list experiences, or fight in their marriage, or put off spending time with their kids, or don’t take vacations, or don’t quit jobs that they hate is MONEY.  And I can't tell you how much I hate that.  No one on their deathbed ever says “I wish I would have worked more”.  No one ever says at the end of their life “I wish I was less giving, less adventurous, less caring, less friendly, less compassionate, less loving.”  A full life, a happy life requires that you have experiences and relationships that supersede any financial status or position.

So it would seem at first that money is enemy #1 but I don’t believe that.  What I think is enemy #1 are our expectations of what money means to us, can do for us, and the order in which we place it in our thinking about how we plan to live our life.  Living an intentional life just like you want and managing your money wisely can coexist.  In fact, I argue that they are co-dependent.

My “best” clients aren’t wealthy.  They occasionally struggle with unexpected expenses.  They worry about rising college tuitions.  They haven’t bought a new car in 7 years.  But they have the best vacation photos of their kids taken over the years.  They both love their jobs.  They give a substantial amount of money away to their church and non-profits that they like.  They have a list of experiences and adventures a mile long.  They don’t work late or on the weekends.  They have a huge collection of friends.  They are active and athletic.  They smile a lot.

Not everyone wants a financial advisor who wants to focus first on being happy.  Not everyone wants a financial advisor telling them to think about being a nevertiree.  Not everyone wants a financial advisor suggesting they find a non-profit who will take more of their money.  Not everyone wants a financial advisor who advocates carrying around a bucket list.  But I want clients who do and who expect me to help them manage their finances so that they can focus on living more like they intend.