In my world, things like crypto, Bitcoin, unicorns, IPOs, meme stocks and alpha are all general terms used to describe a human’s desire for outperformance in their portfolio.
I spend a lot of my day helping investors understand what all these things even are. They’ve heard of them on the recent financial news outlet du jour, or had a friend make them feel like they’re missing out on parabolic returns at the recent cocktail party. And, after 22 years in this career, I’ve learned (the hard way) that outperformance isn’t a financial goal.
“What!” I hear the collective gasp of my reader’s surprise. “Isn’t that what a Financial Advisor is for? I want to outperform stocks, bonds, cash, gold, crypto…all of it! Anything less isn’t good enough! Your fee cannot be justified!”
To which I say…I feel bad for you.
Again, outperformance is not a financial goal.
Accumulating enough money to retire comfortably is a financial goal.
Having your money outlast you instead of the other way around is a financial goal.
Ensuring your loved ones are well taken care of in the event of your untimely death is a financial goal.
Beating an index…is not a financial goal.
Far too many investors come to this realization too late in their accumulation years. Once the fad begins to hit new heights, and the financial media picks up the story and runs with it, the fear of missing out takes root, and they buy the fad…at the high…only to see it crash down like a meteor, causing them an enormous amount of regret, and they sell…at the low. Buying high and selling low, again, not a financial goal. But as the price ascends, they declare that in that small and inconsequential timeframe, their return was 2% better than mine – a significant amount of outperformance. Fast forward a decade or three and that outperformance gave you a margin such that I run out of money when I’m 79 and you run out of money when you’re 80. This ultimately turns out to be a fool’s errand when we’re both 85 years old without two nickels to rub together between us.
Thus, in neither case did the return of your portfolio decide the fate of the realized financial outcome. We both ran out of money. What should have mattered (and ultimately the point of this essay)…what is a financial goal, is that we’d have a written, specific, actionable, retirement accumulation plan that would have given us enough cushion in our savings to have our portfolio outlive us. What we thought performance would give us, turns out that only a plan could provide. And that plan requires a Planner. Preferably a Certified Financial Planner with the skills and competencies to craft such a masterpiece.
Ultimately, trusting the Planner to invest in a diversified portfolio that delivers satisfactory results in support of your well-defined financial plan is ultimate nirvana. Focusing on outperformance is a path that leads to…well…nowhere. It’s a constantly shifting path that knows no end. It keeps investors anxious and glued to the TV. Hoping, praying, wringing their hands for the next bit of click-bait that will afford them the opportunity for outperformance that they seek.
But, to my readers, the Plan serves as the ultimate peace giving financial document that allows them to rest well at night and enjoy the meaning and purpose for which they were made.
Develop a Plan and stick to it. Then…rest well, gentle reader. Rest well.
