Ambivalence
As a virtue
As a financial advisor, I often battle with my “appearance” of ambivalence toward capital markets. I would like to shed some light on this.
My ambivalence often centers on the question: ‘We have some extra cash, should we invest now?’ A relevant question, without a simple answer. A broker, agent, or investment representative may say unequivocally, “Yes!”, seeking an opportunity to grow assets and increase income. However, the honest answer from a dedicated advisor is “It Depends”. The answer depends on several factors, including time frame, end investment goal, income risk, debt, and more. The answer should not be predicated on what is happening in capital markets today, this month, or even this year. I think that often the question I am being asked is: “whether we should invest is based on market factors, up, down, etc”. I firmly believe the client's question should be answered based on the financial plan and the outcomes the investment commitment will produce.
I preach the following hierarchy for saving and investing. Cash reserves adequate to the family's income risk and needs, insurance protection, long-term investments consistent with long-term goals such as wealth accumulation and retirement, tax balance in investments, and finally, estate liquidity. I just can not advise clients to invest due to current or anticipated market movements; I need goals and outcomes. Investing based on current economic conditions is more speculation than planning. I wonder whether my clients might assume that my “it depends” answer conveys distrust of long-term investment performance. To be clear, my belief system is built on the simple fact that long-term, properly allocated, high-quality investment portfolios are fundamental to long-term financial well-being. Properly curated investment portfolios are important; however, other assets, such as real estate and business interests, should be considered and also contribute to building independence and wealth. To hammer home a point, think of Legos. A financial advisor/planner helps clients view their assets in a thoughtful and organized way. Fitting each block together so each block complements and supports the others is the craft of a knowledgeable financial advisor. The blocks comprise investment accounts, insurance contracts, and annuities, which work together toward a common goal. Some blocks form the base components of preservation, liquidity, and a goal of stability. Other blocks seek growth, capitalize on tax advantages, produce income, and transfer wealth. None of the blocks should stand independently, but should be evaluated as part of the entire plan.
Thank you for your trust. I believe that the comprehensive approach is key to our long-term professional relationship. Also, introductions to people who are looking for a planning relationship are the biggest compliment you can give us.
Happy February, stay warm, and know that Spring is not that far away.
- Just a reminder that 1099 and tax form mailing dates are provided in the LPL Tax Guide. Please let us know if you have any questions.
- Our office will be working on calculating RMD’s over the next couple of weeks.
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