What Investing is (and is not) 

Recently there has been a lot of attention placed on the wild financial gains of certain companies and trading platforms.  So much hype around what’s being made, who’s taking advantage of who, and stories of turning $20k into $200k in three weeks.  Top this off with a good dose of FOMO, fear of missing out, and you have individual investors and institutional investment professionals battling against one another.  Is this really what investing is all about?  Is it truly a “winner take all” mentality that matters most?  I believe this dangerous message continues to gain popularity and misses the mark of what investing should be and more importantly what it’s not.

To some, investing is most certainly a zero-sum game.  There are financial folks who keep their job solely based on beating a benchmark or finding a gem that others overlooked.  They work exhaustive hours for large public and private companies directing massive piles of money.  Sometimes this includes the firm’s monies and more often it’s other people’s money.  The goal is to outperform one another, success is defined exclusively by the outcomes generated.  I can’t imagine the stress these individuals carry and deal with daily, it must be enormous.  All the while focusing on results that generate a little more return here or there.  Craziness.

Another set of investors, the families and professionals our firm serves day in and day out, take a different approach.  These folks are thriving despite the pandemic as they continue to excel professionally while raising a family, taking care of aging parents, and working closer to repurposing their time one day.  They have chosen to tune out the message that’s broadcast daily and have defined investing from a different perspective.  They don’t believe “investing simply boils down to winning and losing”.  Why?  They understand, at the end of the day investing for yourself and those you care about is not as simple as the digits and commas in your account.  Yes, gains matter and provide choices with regards to your time and how you spend it.  But this group understands, immediate returns are not everything.  Investing should not be about winning, gaining more, beating a hedge fund or your neighbor’s returns.  Investing should be about a destination, a plan, a process, and a journey towards something/s important to you and your family.  This message seems lost today as the gamification of investing and immediate wins takes hold.

There is a better alternative and approach to embrace regarding investing.  It’s a fundamental shift away from all the noise and transactions today that garner attention.  It’s quieter, less in your face, very boring, and yet more sustainable for the long term.  This message shares an understanding that investing is a means to get you closer to your desired destination whatever that may be.  Funding a college education, starting a business, big ticket purchase, or repurposing your time earlier then anticipated.  All of these examples and many more require looking beyond recent gains in your account.  It requires you to be patient, remained disciplined, flexible, and follow a repeatable process.  This process works best when it’s directed by a written plan and revisited annually.

So, what exactly does a quick investment win or gain in your account mean?  How do you know you’re on track and progressing in the right direction?  Is the current trading outcome so powerful that today’s win is of most importance?  What about tomorrow?

Investing should be about setting a goal by prioritizing it among other goals.  Then, once you have goal clarification, you may proceed to invest in a manner that gets you closer to what you want.  Goal prioritization is not easy, often there is a lot we’d like to accomplish.  This possibility planning generates questions that must be answered so you know exactly what purpose your dollars should be serving.  This ensures they are invested in a manner that ultimately supports what you seek to accomplish.  A plan takes shape to support this goal and ultimately a portfolio of investments is created.

Today, goals and planning seem to have been replaced with quick returns and great trades in a single stock.  This is not investing, this is gambling.  Focusing more on outcomes then the necessary inputs leads to a dead end, the sooner you realize this the better.  In the long run, successful investors think beyond a single trading day, month, and even a year.  They use their plan to define chunks of time in ten- and fifteen-year periods.  They accrue wealth by asking themselves better questions before they invest.

• What exactly am I investing for?
• What purpose do I have when selecting investments?
• What is the time horizon and first use of the monies?
• How long might my investments stretch?

I would guess few of today’s investors have stopped to ask themselves these questions before plunging into the frenzy of investing.  By not answering the above questions, and creating a plan, the definition of investing becomes singular and is outlined by more is better.

What we believe and share with all who will listen is that, over the years, each portfolio needs to serve a specific purpose.  This has led us to require that all portfolios managed by our firm be directed with purpose and by a written plan.  No plan means no portfolio is accepted, period.  The plan is goal based and cash flow driven before a dollar is invested.  A written investment policy statement outlines where the monies are invested and the associated timeline.  This statement allows the portfolio to be constructed the right way the first time as rebalancing takes place annually.  This directs all attention back to the goal-based plan and current and future cash flow needs.  It avoids the pitfalls of excessive transactions and trading now that ultimately generate more taxes than wealth.

It’s our belief that beating a benchmark or other outcome focused result rarely supports sustainable financial decisions.  Who cares if you beat the short-term benchmark if you run out of money in your 80s?  Planning exists to minimize this and other real risks that surround our financial decisions each day.  If you’d like to learn more about what it takes to become a successful long-term investor, please reach out below, we’d be happy to chat with you.

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