Investing Made Simple: Part 2

Market Mastery Ain’t the Solution!

My clients don’t have to master or understand the markets to have a healthy relationship with their investments. Honestly, there are no secret whiz-bang investment strategies.

Investing is a discipline, a habit and YOU are the biggest factor in the success or failure of a financial plan. Don’t know what I mean by financial plan? Let me explain.

Invest to Your Profit (and) Loss Zone, Not a Fictitious Series of Returns!

I manage investments to your expectations of profit by helping you evaluate what kind of risk you can stomach in exchange for said profits (return). A lot of times people don’t know what their expectations of profit are and they ask me what it “should” be.

Your profit expectations and fear of loss are more dominant than you imagine:

That is why you need to understand your P&L Zone! It’s important for you to define how much money you expect to make (profit), or how many dollars you are willing to lose on your investments in a 6 month period (risk tolerance).

What about Real Estate or Cryptocurrency?

When you call to pick my brain about a rental property investment or the cryptocurrency your buddy said you HAD to get into, we’re going to have the same conversation we’ll have about your other investments:

Let’s look at your financial plan in eMoney.
What are you investing in?
Do you understand it well enough to explain it to my 11 year old?
What's your expected (in dollars) profit, and why?
What if your buddy is wrong and you lose all your money?
What if your buddy is right and in 3 years, you got all your money back plus profit?
Okay, let’s put both the profit and loss stories into your plan and see what the effect is over the next 20 years.
Wait, did you just say you’re going to borrow from your 401(k) to make this investment?

Investing is discipline, and sometimes it is losses.

Yes, even Real Estate. People are always telling me they can’t lose money on real estate “because it always appreciates.” I remind them of 2008, when you couldn’t refinance anything because it was underwater, that the two point interest rate drop was costing you $320/mo, that 40% of your equity in the property was gone overnight and it took seven years to get your equity back up to the prior days.

Yes, even Rental Income. People tell me how they’ve never lost a penny with their rental house, Air BnB or strip mall. I remind them of 2020 and 2021 when tenants were protected by the law to not pay rent, when no one was allowed to go on vacation.

Or when the county announced a 12 month street project in front of your strip mall and all your tenants moved out (true story).

Or when the un-homed pitch tents in front of your building and the city won’t let you remove their stuff. Your tenants’ employees and customers don’t feel safe, so your tenants move. Now your downtown office building is undesirable, so you have to drop rents and triplenet leasing (true story).

Or when there’s a pandemic and your large commercial client has gone to a virtual office, no one knows when it’ll be safe to come back, so they don’t renew (true story).

People are always telling me the stories of when so-and-so lost $25,000 on a stock purchase or they lost $100,000 in one day in 2008 and 2020.

Yep!

That’s why the most important answer you seek about your investments is what your P&L Zone is. ALL investments contain risk of loss. We invest anyway because we are in pursuit of profit.

If a Financial Plan is Free, It Is NOT a Plan. It’s a Sales Pitch.

Most people are used to financial “planning” at a big firm or wirehouse (think Edward Jones, Merrill Lynch or TIAA). They are accustomed to a free “financial plan.”

Free is a great price, right? Not. If a financial plan is free, it is NOT a Plan. It’s a sales pitch!

What people don’t know is

The Advisor emails the clients’ papers to a centralized team in Minnesota.
Minnesota plugs in the clients’ numbers to a slick software system.
Minnesota Team (who has never had a conversation with the Clients) mails back a thick notebook full of charts and graphs to the Advisor.
They include some recommendations on what the “plan” indicates the client should change in their financial life; so the Advisor has talking points that he/she did not vet or create
The Adviser presents the “Fake Plan” to people who think that they’re receiving impartial advice on their financial questions and goals.
The Fake-Plan helps the Advisor sell the firm’s mutual funds, life insurance, long term care insurance, and annuities.
The Advisor makes their quota, keeps their job, and doesn’t lose their health insurance.
The Firm makes money on the back end (like the firm always does) and they move onto the next person.

I couldn’t make this up to save my life, people! 7 years ago I was offered a job at a prestigious firm to play this game with teachers and professors. It’s as appalling to me now as it was then. Talk about the un-golden rule!

What about the Free Plan you get when your Advisor is already managing your money?

Okay, let’s unpack this one too. Maybe (just maybe) it’s a good plan.

Most Advisors’ are pigeonholed in a bad business model that forces them to spend their time bringing in new assets and meeting prospects for sales presentations. This is night and day different than:

having heartfelt conversations with you about their goals and fears
helping you understanding the overall plan (from the risks of life to the risks of investments performing badly)
recommendations for your finances based on careful listening and analysis

Flimsy Plans are easy to spot a mile away. They are cranked out template style from pithy, inexpensive software apps that my 5th grader could use.

Oftentimes, the Advisor is using a Plan to illustrate the investment-concept they created before they did a stitch of analysis or contingency planning. It covers their rump, that’s why it’s flimsy and (free).

I have heard my esteemed peers say, “If a financial plan takes longer than an hour to do, I’m out! I already know what the client needs to do; the plan covers my rump with compliance, and makes me look smart.” (as a point of reference, I spend 10-15 hours on a Financial Plan)

Why the Fork Should You Care?

If you’re reading this blog, then you are trying to educate yourself! A Financial Planner should help you answer some of life’s big questions and should do so with utmost integrity and avoid all conflicts of interest. You’re paying for advice, much like when you visit a doctor or a therapist.

My Financial Planning process considers every atom of your financial life: from the cost of milk in 8 years, 401(k) matching, to mortgage insurance, child support coming to an end, massive downturns in the markets (e.g. covid pandemic). Yes, even future-things like the taxes you’ll have to pay on the rental property you sell in 10 years, and the ripple-effect of your baby getting a scholarship (or not).

I simulate all your unique financial-atoms, both imagined and real, working collectively... for the rest of your life. I wholeheartedly believe in the power of financial-planning because I’ve watched it transform people’s relationship with money.

My Financial Planning process allows my clients to see more than a moment in time, and beyond next weeks’ paycheck. We see a lifetime--financially!

That’s Awesome. (Who Cares?)

My clients don’t actually care about the cash-flowing and financial engineering I do for them. (You won’t either!)

That is, until I show your financial life for the next 30 years on one piece of paper or screen. Suddenly, your financial decisions become crystal clear.

My clients care about being understood. They are at peace knowing they checked the “money boxes,” through the planning process.

More than Mere Opinion

After we do Financial Planning, you have an agile body of numbers that tell your financial story. When questions like, “Can I buy a Tesla?” or “Can you tell me what to do with all these investments?” The answers aren’t opinion. The answers are obvious when I model the idea against your current financial realities.