Someone I met recently at a social function asked what our firm did and I said “we help clients change the way they think about money.” The reason I phrased my reply that way is simple; 80% of the investing public still rely on the widely discredited notion that there is some super secret work-around to the markets and only their broker, ahem…advisor has the key. If you believe money is mostly about quarterly investment performance then you’ve played right into their hands.
Our mission is to help investors understand that money is purchasing power. Not just for buying things you don’t need but for your piano lessons, for the family vacation at the beach, for all the experiences that collectively comprise your lifestyle. Ultimately, being able to continue creating life experiences that are important to you is the operating definition of money.
Magic and Mystery?
Traditional money management entities (brokers, banks, insurance firms) rely heavily upon magic and mystery. That is, they portray themselves as having some special skill to navigating market inefficiencies through their numerous market gurus. Author Nick Murray calls this “The Big Lie- the malignant falsehood that volatility can be defeated.”
Investors’ ‘worst instincts’ are pandered to by the financial expert class and unfortunately most investors take the bait. The key to financial success is turning this harmful thinking on its head and embracing almost a century of market history that tells an entirely different story.
To believe what typical financial services firms are peddling you have to essentially suspend reality and pretend that market science simply doesn’t exist.
“Smoothing Out” Returns?
Lately, investment marketing firms, (which, after all, is what brokers, banks, and insurance companies really are) have been falling all over themselves pushing investments derived to “smooth out returns.” Well, market returns aren’t smooth because prices are always seeking equilibrium. For every panicky seller there is another investor that is a willing buyer. “Smoothing returns” is just another way of saying reducing returns.
Seeking protection from volatility isn’t ‘protection’ at all, it’s foolhardy. Learning to think differently about money starts with recognizing the central role that volatility plays in creating long term investment returns. The reflexive impulse to always seek complicated ways to reduce volatility is replaced with an understanding of how investment returns are actually earned.
The ultimate benefit from thinking about money differently is that you start to change your perspective away from the short term, (that you mostly can’t control), to the longer term. Mental anguish about the market is replaced with focusing on what you want your financial future to look like. Start there. Ready for a real conversation?