How do we transition from basic foundational investing to a more purposeful investment portfolio? In our opinion, this is an important evolution for investors as your portfolio becomes more personalized and meaningful. This core philosophy is best described as the intersection of foundational investment principles, financial planning, and behavioral finance.
Fundamentals of Purposeful Investing
We find too many individuals are either focused on investments OR financial planning, while the truth is that they should work together. An investment portfolio should have a purpose, and what could be more purposeful than matching the goals derived from detailed financial planning to your household portfolio. Whether it be retirement income planning, legacy planning, or simply meaningful personal goals, your portfolio should be aligned to assist in achieving each one of them.
If you enjoy paying taxes, you might as well skip to the next one. For investors in high tax brackets or sensitive to taxes in general, your portfolio should be designed and managed in such a way that helps to minimize them on an annual basis. This involves various strategies such as loss harvesting, asset location, low security turnover, wider rebalancing thresholds, and several others. Taxes can eat at investment returns if not managed correctly, and potentially make a down year even worse. It’s not how much you make; it’s how much you keep.
You don’t need to be a trained psychologist to know that humans are emotional beings. While that’s part of everyday life, it can be a major issue if uncontrolled when it comes to the financial part of life. Studies have repeatedly shown that investor overconfidence and emotional decisions can lead to financially catastrophic outcomes. We’re financial planners and wealth managers at heart but being a behavioral coach during both good and bad times is just as important.
It’s been our experience that the anxiety caused by finances and investments stems from a lack of education, transparency and communication. We believe that its our job to educate our investors on markets and portfolios, be transparent with our positioning and changes, and to communicate on a frequent basis. In doing so, we believe our clients will be less anxious and more confident in all aspects of their financial plan and investment portfolios.