Relationship with Money
A blog that knows money is more than numbers
71 | In Defense of Values-Based Investing: Cost Isn't Only Measured in Dollars
If defining the "mysterious" third factor is challenging, then actually executing a strategy that accounts for it is as nuanced, complex, and filled with constraints as anything in personal finance.
One set of nuance and complexity has to do with the level of due diligence and research dedicated to evaluating possible investments.
Whether you are doing the research yourself or hiring someone to do it for you, the process of evaluating companies through a personal set of values or beliefs is a tall task.
Time becomes the limiting factor if you're picking individual stocks and trying to evaluate each of them based on non-financial merits.
Trust and alignment of values become the limiting factors if you're trying to find a fund that will actively evaluate each company for you.
Accessibility and awareness become the limiting factors if you're looking for a private investment that might address the mysterious third factor.
Underneath all three approaches, the level of judgment intensity is a spectrum unto itself - it's one thing to avoid companies that fail to check certain boxes, but it's another thing entirely to only select companies that check all the boxes.
Then there are the technical and behavioral factors to consider too.
The more we limit the field of investment candidates, the harder it is to be diversified, which can lead to greater return, but also greater volatility.
The more we tighten up our criteria, the less correlated our returns will be to the greater market, which can challenge our level of conviction during the inevitable periods of under performance.
Each of these nuances is a hidden "cost" that can be worth paying, but like any hidden costs, the less you know about them before you start the more likely you are to be disappointed when they show up.
We can continue to talk theoretically about all the nuances, but like any other investment approach, outcomes are driven by the same themes of being diversified, deciding your blend between stocks and bonds, expecting to buy and hold for a long time, and being patient through the ups and downs.
As fun and rewarding as it can be to talk about "impact" and "flourishing" and "value creation", if we forget the fundamental themes then we aren't going to make it very far. And if we haven't cared for our own relationship with money, then most of the effort will be for naught.
But if we've acknowledged the nuances, cared for the basics, and tended to our own relationship with money, then the upside on all three factors - return, volatility, and that mysterious third - is quite a worthy pursuit...
70 | In Defense of Values-Based Investing: The Mysterious Third
Traditionally, the performance of investments has been measured using two primary factors.
The first and sexiest is investment return - how much did the investment grow over time? This is what you'll overhear people bragging about at a party or on social media.
The second is investment volatility - how smooth was the ride to achieve the return? You won't hear as much about this one, but I think it's what allows the most seasoned investors to sleep well at night and pat themselves on the back for a job well done.
Understandably, these two criteria are relatively easy to measure and compare across investments, so they've become factor 1A and 1B for analyzing performance over time.
From the start, there has always been a mysterious third factor that anyone could feel in their gut, but struggled to put into words.
Recently, as access to information has become more ubiquitous and timely, it has felt like defining this third factor is more within reach even though at times it's still as mysterious as ever.
Is the company actually creating value for people or is it extracting value from people?
Does the company contribute to the flourishing, in the most holistic sense of the word, of all people in the world?
Or does the company contribute to the continued deterioration, in the sneakiest sense of the word, of all people in the world?
The trouble is that distinguishing between value creation and extraction is hard.
Does Amazon create value by partnering with small businesses to allow them to connect with a larger footprint than ever before or does it destroy the fabric or our culture by sterilizing and globalizing the consumer experience?
Does a brewery perpetuate a society's challenges with alcohol or does it create a space for connection that combats society's struggles with loneliness, depression and anxiety?
Does a car manufacturer provide access to vehicles that allow us to be productive, see the world, and connect with others or is it one of the cornerstones of society's poor relationship with debt, social comparison, and inability to embrace public transportation?
Plenty of companies have generated phenomenal investment returns capturing significant value for their owners, while pushing our society further away from a long term state of flourishing.
Differentiating between creation and extraction is quite complex in the moment, and can even still be pretty murky in hindsight.
This third form of investing is more akin to actively selecting companies than indexing, but the filter with which those companies are evaluated is quite different from only maximizing profit and minimizing volatility.
Additional Reading
Shadows and light by Seth Godin
Is there any perfect company? by Sherrie Johnson Smith
69 | In Defense of Actively Picking Companies: A Walk Down Franklin Street
Actively picking companies is a style of investing in which, instead of owning the entire group of companies available, you decide to intentionally own a subset of companies from a group.
This is how investments have been evaluated since the very first investment opportunity came about - investment opportunity presented, due diligence performed, and decision to own or pass on ownership made.
Actively selecting companies implies a belief that individuals have the ability to evaluate, buy, and hold companies whose value will increase more than the value of other companies over time.
A Walk Down Franklin Street
I went to school at UNC-Chapel Hill from 2006 to 2011. Four years of undergrad followed by one year of grad school.
The campus buts up against Franklin Street - a bustling street full of restaurants, retailers, condos, and all other types of businesses that are often packed with people, especially during most Marchs and Aprils.
Some storefronts have been the same for decades and others have turned over every other summer for decades.
Franklin Street isn't that different from hubs of activity in cities and towns across the world - its history is marked by companies that have stuck around, newcomers that have taken off, and old and new companies alike that have gone belly up.
Some of the businesses have been around for ages and seem like they could stick around for ages more...
- Top of the Hill
- Yogurt Pump
- Julian's
- Chapel Hill Tire
- The Carolina Inn
- The Bicycle Chain
- Sutton's
- Cat's Cradle
- Johnny T-Shirt
Some of the businesses have popped up in recent years and have become stalwarts of their own very quickly…
- Al's Burger Shack
- Target
- Trader Joe's
- Hampton Inn
Some quality businesses have succumbed to the harsh reality that all business can't last forever...
- Ye Olde Waffle Shop
- The Rathskellar
- Walgreens
- Spanky's
Some businesses were bad ideas or sketchy from the start and failed immediately, or worse, are still limping along today. Out of respect, I won't list these by name.
I'd wager that many people could have "predicted" some of these outcomes - maybe not the precise timing or the magnitude of failure, but certainly the inevitability of failure.
The reality is that an investment in any of the companies in the first group or second group could have returned 10x or 100x or 1,000x, while those in the third group and fourth group may have not returned the initial investment to an owner.
If given $100,000 to invest in any mixture of these companies, how could you not make an honest effort to pick the ones that would stick around and avoid the ones that seemed destined to fail?
68 | In Defense of Actively Picking Companies: You Can See It and You Can Feel It
Actively picking companies is a style of investing in which, instead of owning the entire group of companies available, you decide to intentionally own a subset of companies from a group.
This is how investments have been evaluated since the very first investment opportunity came about - investment opportunity presented, due diligence performed, and decision to own or pass on ownership made.
Actively selecting companies implies a belief that individuals have the ability to evaluate, buy, and hold companies whose value will increase more than the value of other companies over time.
You Can See It and You Can Feel It
Almost everyone can spot a good company when they see it.
If you can't see it, then you can certainly feel it.
Customer service that makes you feel like family. A sterling reputation in the community. Rave reviews that spread like wildfire. Lines out the door. Immediate sell outs of products and services. Owners and employees who are “cut from a different mold”.
Without looking at the numbers, I think most of us can identify companies that will outperform, last longer, and add more value to society than others.
The types of companies that lead people to say, "If only I could have bought a share of that company 20 years ago!" after a single interaction.
The characteristics of a successful business are often easy to observe firsthand.
The reality is that these things don't change just because the company isn't located in our neighborhood, or the company operates in an industry that we don't interact with each day.
Identifying and owning these companies is at the core of the active investing philosophy - some companies will perform better than others and others will not keep up, so be sure you pick the right ones.
Of course, there is a cost to selecting these companies. Someone must experience the customer service, feel the reputation, hear the reviews, see the lines, account for the sell outs, and talk to the employees, and this work requires some mixture of capital, time, attention, and energy to be expended.
This task is easier on paper than it is in practice, but history has shown us that the people who can do it well can generate significant investment returns.
67 | In Defense of Actively Picking Companies: Winners and Losers
Actively picking companies is a style of investing in which, instead of owning the entire group of companies available, you decide to intentionally own a subset of companies from a group.
This is how investments have been evaluated since the very first investment opportunity came about - investment opportunity presented, due diligence performed, and decision to own or pass on ownership made.
Actively selecting companies implies a belief that individuals have the ability to evaluate, buy, and hold companies whose value will increase more than the value of other companies over time.
Winners and Losers
If there is one reality with investing, it is that there will always be winners and there will always be losers.
Every investment decision has two parties, one that is buying and becoming an owner and one that is selling and giving up their ownership.
From that point forward, if the value goes up then the new owner "wins" and the old owner "loses".
If the value goes down, then the new owner "loses" and the old owner "wins".
This fact alone would lead you to believe that it's important to know more about the investment than the other party to the transaction.
Like most other things in life, a more experienced, knowledgeable person is more likely to outperform a rookie.
A chef is going to plan a meal, acquire supplies for a meal, and cook a better meal than a rookie cook 100 times out of 100.
A marathon runner is going to prepare more efficiently, have a reduced risk of injury, and outpace a rookie runner 100 times out of 100.
A plumber is going to bring the right tools, access the pipes more effectively, and eliminate a leak more quickly than a rookie homeowner 100 times out of 100.
Understanding the company's financial health, the quality of its employees, the quality of its relationships with stakeholders, its standing within its industry, or the potential future demand for its products and services is integral to making a good decision about whether to own it or not.
Winners and losers are inherent to the system, so spending a little time trying to increase the odds that you can become one of the winners is table stakes for successful investing.
66 | In Defense of Indexing: Meet People Where They Are
Indexing is a style of investing in which, instead of intentionally selecting a subset of companies from a group, you decide to own the entire group.
Groups of companies come in all shapes and sizes - a group could be all of the big companies in the United States, all of the energy companies in the world, all of the small companies in developing countries, or any other combination of geographies, industries, or company sizes.
Indexing meets people where they are.
When it comes to investing, many people struggle to understand and fully appreciate the details of a specific investment strategy. This is not a problem - real limits of time, experience, and interest create significant barriers to developing even a baseline understanding of investing. Indexing acknowledges this reality.
We know that relative wealth is more important to people than absolute wealth. We also know that people feel the pain of losses more than the pleasure of gains. Indexing allows your investing experience to be like many people instead of different from most. Inherently, indexing allows you to “keep up” with others in seasons of positive returns and ensures that you don’t “lose ground” relative to others in seasons of negative returns.
We know that people dislike paying taxes, particularly when they might not fully appreciate or understand why they are paying them. The feelings are compounded when taxes are generated from one account and the tax bill is paid out of a bank account many months later. Indexing reduces turnover which in turn reduces ongoing taxes.
We know that people dislike paying fees, particularly when they might not fully appreciate or understand why they are paying them too. Given our human tendency to demand short term results and feel losses more acutely than gains, it can be extra difficult to pay fees and see an index fund outperform a more expensive investment even for a brief season. Indexing requires minimal due diligence in company selection which continues to drive fees towards zero.
We also know that simplicity beats complexity. Outside of buying individual stocks and bonds, indexing is about as simple as investing gets – a group of companies and you own them all. No layers of decision-makers, portfolio managers, fund managers, or unnecessary complexity and activity to abstract what is actually happening.
Whether an investment expert or purist likes indexing or not, it meets people where they are.
Additional Reading
Good Enough by Morgan Housel
The Error-Proof Portfolio: Why the Best Questions Might Be the 'Dumb' Ones by Christine Benz
65 | In Defense of Indexing: Capture the Upside
Indexing is a style of investing in which, instead of intentionally selecting a subset of companies from a group, you decide to own the entire group.
Groups of companies come in all shapes and sizes - a group could be all of the big companies in the United States, all of the energy companies in the world, all of the small companies in developing countries, or any other combination of geographies, industries, or company sizes.
Indexing knows that capturing the upside is more important than avoiding the downside.
It's easy to think that avoiding companies that struggle or under perform is the most important part of successful investing.
The reality is that the bigger risk is missing out on owning the companies that out perform.
While psychologically this might seem backwards. Mathematically it is pretty simple.
If you own a company that fails, the maximum amount that you can lose in that single investment is 100%.
On the flip side, if you own a company that is wildly successful you can gain 100%, 200%, 500%, or 1,000%+ on that single investment.
It's pretty easy to see that one successful company can offset and totally wipe out the under performance of one or multiple struggling companies.
Indexing ensures that you own all the companies in a given group and, even though you might include a few companies that struggle, it ensures that you also hold all of the companies that exceed expectations.
Additional Reading
Tails, You Win by Morgan Housel
Portfolio thinking by Seth Godin
64 | In Defense of Indexing: More Humility than Naivete
Indexing is a style of investing in which, instead of intentionally selecting a subset of companies from a group, you decide to own the entire group.
Groups of companies come in all shapes and sizes - a group could be all of the big companies in the United States, all of the energy companies in the world, all of the small companies in developing countries, or any other combination of geographies, industries, or company sizes.
Indexing is more humility than naivete.
Carl Richards says, "Risk is what's leftover after you've thought of everything."
The list of things that could cause any single company to fail is literally endless.
To name a few...Pandemic. Natural disaster. Bad product launch. Poor culture. Bad accounting. Unexpected lawsuit. Rogue employee. Cyber security breach. Volatile CEO. Bad relationship with a supplier. Angry customers on social media. New legislation. Rising interest rates. Falling interest rates. And a million more things.
To even pretend that someone could have a pulse on this endless list of things that could go wrong is almost comical. If the CEO of a company can't do it, how in the world is an investor outside of the company going to have a chance of doing it?
This is the challenge of selecting 1 company to perform well, much less a portfolio of 30, 100, or 500 companies.
On top of that, this only addresses the "numbers" side of the investing equation. Gleaning from Morgan Housel, the "story" side of the equation is just as vital and depends on the past, current, and future emotions, feelings, thoughts, and beliefs of the 7+ billion people on the planet and their perception of each business.
If you thought evaluating the company for its merits alone was challenging, good luck trying to reconcile your analysis to the rest of the world.
Indexing acknowledges that all risks that can run a business into the ground are created equally and that trying to keep tabs on them all is an endless, time-consuming endeavor.
Instead of attempting to play an unwinnable game, indexing is a humble acknowledgement that a game that can't be won does not need to be played.
Additional Reading
The natural size by Seth Godin
A Number From Today and A Story About Tomorrow by Morgan Housel
Market forecasting isn’t like the weather… by Carl Richards
63 | Less is More
This post is Part 3 of 3 of the "Trusting Simplicity Instead of Increasing Complexity" series.
You already know everything that you need to know to achieve financial well being - the hard part isn't the knowing, but the ignoring and the doing.
The list of things that are out of our control serve as great places to hide and excuse ourselves from real progress - interest rates, the debt ceiling, politics, taxes, market commentaries, daily return figures, and credit card rewards to name a few.
These things like to paralyze us. They like to consume all of our time. They like to invite second-guessing. They like to create confusion. They like to spread fear and FOMO.
Every single one of those things is responsible for increasing complexity and none of them actually matter when it comes to making real progress.
Yes, I realize that other advisors and news executives are scoffing right now, but from a numbers perspective, all financial well being (or stress!) rolls up to three simple concepts.
Ensuring you always have enough cash in the bank to live your life. Stress management.
Spending less than you make on average for your lifetime. Flexibility management.
Keeping tabs on the relationship between what you have and what you need. Expectations management.
Like it or not, if you can address these three things, there is nothing else to accommodate from a numbers perspective.
If we buy the complexity that we’re peddled on a weekly basis, then the numbers never mean anything and we struggle to reach a place of real financial well being.
If we trust simplicity, then we can focus on a couple of numbers, ignore the circus, and continually move closer to a place of real financial well being.
Trusting simplicity allows us to quiet the noise of the world and rest our minds.
Trusting simplicity allows us to see and tell our story more clearly.
Trusting simplicity allows us to move from fearing the future to constructing it.
Trusting simplicity allows us to find contentment in a world of discontentment.
Trusting simplicity allows us to move through the chaos of complexity without falling prey to its false hope.
62 | Simple is Hard
This post is Part 2 of 3 of the "Trusting Simplicity Instead of Increasing Complexity" series.
Simple is hard because deep down we want to believe it's more complicated than it is - there is too much at risk psychologically.
When we struggle on something that we perceive as simple or easy, it's demoralizing and we get stuck in cycles of shame that get us further away from where we want to go.
The mistake is thinking that simple and easy are describing the same thing.
In basketball, if you score more points than the other team then you win - pretty simple. But to call basketball an easy game would be quite an oversight.
With that said, the feedback loop in basketball is quick enough that you have an opportunity to learn the game as you go by making adjustments after a timeout, a quarter, or between games.
The scoreboard makes it easy to keep track of the objective and the natural cadence of the game allows you to make adjustments and close feedback loops.
With money, the objective is simpler than it seems, but the execution is anything but easy.
We're bombarded by alternatives, opinions, suggestions, circumstances, trade-offs, and misunderstandings that are constantly challenging our definition and perception of "enough", so the objective fades into the background or disappears completely.
And as Michael Lewis says in the Big Short, "The problem with money [is that] what people [do] with it [has] consequences, but [they are] so remote from the original action that the mind never [connects] the one with the other", so the feedback loop - for positive and negative outcomes - is nearly impossible to recognize.
It's important that we don't get confused about what we're calling simple.
The objective of the game - to have "enough" - is simple, but because of the constant noise and the missing feedback loops, the actual execution is hard.
Simple is hard because of the things that keep us from getting to it, but once we’ve experienced it and started to trust it, we come to realize that it’s priceless…
61 | Complexity is Sexy
This post is Part 1 of 3 of the "Trusting Simplicity Instead of Increasing Complexity" series.
Complexity is sexy for the person seeking it because it appears to cover over all the potential faults.
Complexity is sexy for the person offering it because it sells itself.
Complexity has been an unfortunate hallmark of the financial services industry since its earliest days.
From investments to projections of the future to insurance products, on the surface they seem different, but the underlying theme remains the same - more complexity is the only answer to a complex world and our complex feelings.
The reality is that complexity isn’t a solution, but more a symptom that we've abandoned the simple concepts that drive 95+% of the outcome.
It's a little bit like reading the textbook in school and understanding the governing principles of a topic. Once you have a baseline understanding of them, they seem relatively simple, even a little like common sense.
Then as a rookie you move into some role that is governed by those concepts, but you're too far down the org chart to see them in action and everything feels more complex than you ever imagined.
If you can't ever orient and move past the complexity of the rookie tactics and responsibilities, then you never see the "other side" where the simple concepts truly do govern everything.
Complexity is a cheap substitute for real financial well being and it torpedoes our relationship with money for at least a couple of reasons...
It's easy to assume that if you can't understand something then the person promoting it must be smarter than you are and therefore "right".
At best, this undermines your confidence and at its worst it allows many an "advisor" to continue profiting off of innocent naivete without actually improving well being.
It's also easy to think that if it's complex, then it must lead to "more".
This one is a double whammy because complexity might not (usually doesn't!) lead to "more", and even if it did, "more" isn’t always what it's cracked up to be.
Complexity is the easy way out and we all know that the easy way doesn't work in the long run.
Simple is what works, but simple is harder than it seems…
60 | It’s Just Not That Simple
The advice is simple - spend less than you make.
But it's just not that simple.
Time and time again we get confused and that relationship becomes harder to keep tabs on than we ever imagined.
All the "one time" things make it tricky, because we don't want to count the car repair or the vacation or the medical bill in our "normal spending".
If we've built up some amount of cash on hand, it's tricky to tell if the dollars spent came out of our paycheck or our savings account.
If we use debt, it's tricky because in spirit we've "spent" the full amount of the loan, but the monthly payments make it seem like we've spent much less.
If we use a credit card, the moment we've swiped the card the dollars are spent, but the statement 30 or 45 days later makes it seem like the swipe wasn't the real decision to spend.
If we receive a gift and spend it, it's tricky because there's a chance that we've increased our baseline spending expectation without the promise of a repeat gift.
The trouble is that even a simple financial household with one or two of these nuances makes it difficult for most folks to know how much they spend.
Because we assume that everyone knows how much they spend (they don't!), spending advice quickly gets reduced to categorizing transactions and the level of engagement for non-CPA- and non-engineer-types plummets to zero.
Instead, start with figuring out how much you spend.
That's it. Nothing else.
That alone will put you ahead of most of the population.
There's too much emotion tied to the categories, particularly if you're leaning into the exercise for the first time.
When we reduce it to the numbers, we temporarily take the emotion and personal preferences out of the "quality" of the spending that is or isn't happening.
Even the least financially savvy person knows that you can't spend more than you make forever, but too many spending conversations get stuck debating the merits of individual categories that we lose track of the bigger picture.
The reality is that if you don't know how much you spend, then you don't have a prayer of determining how much is enough.
Don't worry about the categories until you know how much.
59 | “Give Until It Hurts” is Bad Advice
It's too abstract.
It ignores the nuance of people's life experience and unique personality.
It ignores the nuance of different types of resources.
It lets some people with a low bar for "what hurts" off the hook.
It drives others with a high bar for "what hurts" into tough spots.
It's impossible to create any kind of accountability.
It pretends like it's black and white, and once "it hurts" you have arrived at a state of enlightenment.
The reality is that it's a lot grayer than that.
I think there are two spectrums that begin to provide some direction for where we're trying to go.
The first has to do with the resources that are being released or given away.
Relatively speaking, time and talents are typically easier to give away than financial resources.
Some percentage of your income (purple) is harder.
Some portion of what you have accumulated in cash, investments, and real estate (blue, gray, and yellow) is even harder.
With each step, you're releasing more power, control, discretion, authority, and optionality to someone else and that is a hard thing for most humans to do.
The second has to do with where or with whom the released resources land.
*This feels more personal to a person's specific worldview and faith convictions, but I am using our own personal Christian faith as the basis for this spectrum.*
Relatively speaking, releasing resources to your own personal interests is the lowest level of engagement or "others-centeredness”.
Giving that contributes to the common, social, or cultural good is a higher level of "others-centeredness".
Giving that reallocates financial wealth and repairs relationships with the most vulnerable members of our society is the highest level of "others-centeredness”. We typically view our traditional tithe as a component of this category.
Personally speaking, our aim with our finances is to continually move up each spectrum over our lifetime keeping in mind that...
Giving before death is greater than giving after death for refining our own relationship with money.
Giving relative to our own level of financial wealth is greater than the absolute amount of the gift for our own relationship with money.
My hope and belief are that this framework allows us to participate in the redemption of all things, refines our heart to be more like it was created to be, and in turn, plays a role in helping us clarify and discover "how much is enough".
Thanks to CC for helping clarify these thoughts!
58 | The Wizard Behind the Curtain
In a conversation with a close friend, we arrived at a crossroads.
He asked/said, "The way I understand our investments is that we send money 'behind the curtain to the Wizard of Oz' and he messes with it trying to grow it to be as large as possible so we can retire, pass some along to our kids, and maybe help pay for college. Isn't this all that is happening?"
My only response was, "No, that is not right."
I wasn't abrupt because he made a mistake or because I was frustrated.
I was abrupt because he articulated a modern-day perspective towards investing so clearly and I had to be sure we didn't get further into the spin cycle that flashy marketing and a deluge of information have created.
The "grow as large as possible" and "isn't this all that is happening?" are topics for another day.
The concept of the curtain and the Wizard of Oz is what I want to lean into here.
A couple of decades ago, there was a curtain and there were keepers of secrets that could provide access or information that was important.
In what has been a positive trend for a couple of decades, the "curtain" has been removed and we have shifted into a world where everyone has access to all the information (and investments!) they could ever need.
At times, I think this trend is hard to recognize because the industry that is dedicated to improving "financial well-being" is not organized in a manner that can embrace this new reality.
The industry continues to cling to managing investments when they aren't what matters most, presenting information as if it's a secret, and promising certainty that doesn't exist.
This failure to re-organize has created one set of problems, but the attempts at "financial advice post-curtain" have only compounded the issue.
As the curtain has fallen, the industry's response has been a deluge of information in the form of tips, tactics, and products that are more redundant and inapplicable than ever before.
We've traded the curtain for confusion.
For as much confusion and anxiety as the curtain caused, I think the deluge of information post-curtain has had the same effect - maybe more.
If we're picking tools to navigate the post-curtain world, a leaf blower that can push away the cheap info is much more useful than the pre-curtain vacuum that could suck up every particle of available info.
You have all the access you need, there is no Wizard of Oz behind the curtain, and a leaf blower is more useful than a vacuum.
If we can acknowledge these realities then we can get onto the things that actually allow us to take the reins on our relationship with money. Sustainable income. Content spending. Accessible savings. Patient investing.
57 | Why a "Financial Coach"?
Frankly, it's hard to know the best title for someone that helps people with their financial well-being in this day and age.
"Advisor" sounds a little stale, a little formal, and a little out of date.
It's used by too many people that might not have any impact on improving your real financial well-being and I think it implies some unique ability to control the markets that no one actually has.
"Planner" sounds a little too focused on the numbers, a little too rigid, and a little too specialized.
It's closer than "advisor", but I think it still implies some ability to predict the future by crunching the numbers a little better than the next person or doing the impossible task of drawing up a plan that eliminates uncertainty. Yes, as a CERTIFIED FINANCIAL PLANNER™, I do appreciate the irony of this perspective.
"Coach" sounds a little informal on the surface, but it is exactly how I hope to interact with every client.
With a coach, there is no doubt that he or she is 100% on your team.
A coach is an integral part of the story, but never the hero.
A coach empowers the player.
A coach helps the player see things that can't be seen when they are playing the game.
A coach knows all the rules and strategies to use in the game even if he or she doesn’t use them all the time.
A coach knows that the gameplan has to be flexible - sometimes in the first minute, sometimes at halftime, sometimes in the final minute, but always flexible.
A coach knows that even if it's discussed or practiced, it still might not happen in the game and that's OK.
A coach directs focus to the things that matter the most.
A coach knows that you can control the process, but you can't control every outcome.
A coach's impact can be felt on a single play, but is most significant over the course of a season or an entire career.
A coach does not see you as who you are today, but who you can and will be someday.
A coach is with you in the wins and in the losses.
Over time, a good coach shares enough life experience, builds enough trust, and earns enough respect that you can't imagine playing the game without them even though you probably could.
Additional Reading
Don’t worry about playing a game better when there’s a better game to play by Paul Davies
How to deal with investing blind spots by Carl Richards
56 | Love The Game Beyond The Prize
To this day, intramural flag football remains one of my top memories of time at UNC-Chapel Hill.
I played on men's teams and co-ed teams. I played multiple seasons with my wife, my brother, and my sister on the same team. Some of our very best friends to this day played on these teams too.
I can still remember specific plays like they happened yesterday.
The Anderson to Hill hook-and-ladder to win our first men's championship. Anderson's toe-dragging interception in the endzone to seal a win in a rainy semifinal game. Rebecca's diving catch to extend a game-winning two-minute drill. Keith's punt return touchdown to clinch a semifinal win. The list goes on and on...
Many of these games established a rivalry against a team named Red Bull Carolina. We played them in the semifinals or finals nearly every season and the game always served as the de facto championship game.
During my final year at UNC, we joined up with Red Bull Carolina to play in a national tournament in New Orleans over New Year's. Some of their players and some of our players - the 2010 version of a college intramural super team.
In the weeks leading up to the tournament, we practiced by the twilight of the moon and street lights trying to mesh two teams. We got to know one another personally. We invented new plays. We told stories of previous tournaments. One story that stuck out was a prior year loss to the University of Nebraska team who went on to win the championship.
In the final days before Christmas Break, we were particularly focused on ways to beat Nebraska if we were to play them again.
All of us carpooled from North Carolina to New Orleans a few days after Christmas. We arrived and explored the city together, did final walkthroughs of plays, and were ready to roll when the tournament started.
We blew through our opponents in the first couple of games. I can't remember who the schools were as we were locked in and only concerned about getting the opportunity to play Nebraska again.
The night before the Nebraska game I can remember our whole team congregating in one hotel room to talk about the game. Clay, our team captain, told us the story of losing to Nebraska the year before. We also all shared stories of how our perceptions of one another had changed over the last few weeks as we had turned from rivals into teammates. It was a powerful team building conversation.
Weeks of technical prep, years of experience, high levels of confidence, and trust in one another - we could not have been more ready and prepared for the game.
Game day had finally arrived and we came out rolling on all cylinders. By halftime, we were up 31-9. They had no answers and we made all the plays.
We were well aware of the fact that the game wasn't over. They had extremely athletic girls who could catch every ball thrown their way. They had a guy who was 6'5", 250 pounds who could haul in a catch over our entire group of 5'10"ish, 160ish pound guys. Plus they were the defending champs.
Early in the second half, they scored a couple of times to make it a less than one possession game (touchdowns involving a girl were 9 points for anyone fact checking!).
I can still remember a play call that I made that was a deep pass to my sister. In the huddle, I drew it up specifically to be on one side of the field, and when we broke the huddle the whole team reversed the way I had it laid out in my head - poor communicator, not bad listeners.
As we lined up, I shrugged it off and proceeded anyway. I threw what I thought was a perfect ball to my sister and it was intercepted in the end zone. If I could do it again, I would call timeout and reset.
Sure enough, we held on to a 4 or 5 point lead heading into the final minute of the game. Nebraska had the ball and was driving the field with an opportunity to score to take the lead and win the game.
We forced them to a 4th down and goal from the 5-yard-line for the final play of the game. Score they win, stop we win.
There was no question what the play call would be: fade route to the corner of the endzone to Mr. 6'5", 250 lbs.
My brother, Hill, was our best athlete and the only player for us who could even try to challenge the catch.
Sure enough, the ball was snapped, the receiver came off the line headed to the corner of the end zone, the quarterback lofted it it up for a jump ball in the corner.
Hill, close by the receiver, followed for a couple of steps and then leaped up in the air timing his jump perfectly to swat the ball out of the air before the receiver could touch it.
The kind of defensive play that couldn't have been planned or executed any better except for the fact that a player, who was not part of the original play design, happened to be standing on the two-yard-line, caught the tipped ball as it fell to the ground and simultaneously stepped across the goal line to score the touchdown.
Game over.
Talent. Years of experience. Weeks of prep. Team building. Motivational pep talks. Game-planning. Seemingly perfect execution.
None of it could account for the fluke chance that there would be a girl trailing the play who could catch a perfectly defended ball for a walk-off win.
As Carl Richards says, "Risk is what's leftover after you've thought of everything."
All the talent, practice, game-planning, and even near-perfect execution couldn't account for every possible way we could lose.
In the same way, all the planning and forecasting of the future can't protect us from all the ways we could be surprised with our finances.
Whether it's the global things like a tech bubble, a financial crisis, a pandemic, or a wild housing market.
Or the personal things like an unexpected dip in income, the loss of a big client, a medical diagnosis, or an unforeseen expense.
Every single one is out of our control, all-but-impossible to predict, and likely to change our outlook on life in obvious and imperceptible ways.
At some point, there is a diminishing return to the game-planning, predicting, and accommodating for an unknown future because there will always be a surprise that can't be accounted for.
Instead of grasping for certainty, we can really only build resilience, refine our whys, and try to remember the advice from my grandfather a few hours after we had reported the heartbreaking outcome home...
55 | The Story of the Mexican Fisherman
Sometime in the last decade, I read the following story on the wall of a Jimmy Johns while waiting on my #5 Vito to come off the line. My perspectives on my career and my relationship with money have not been the same since.
An American investment banker was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked. Inside the small boat were several large yellowfin tuna. The American complimented the Mexican on the quality of his fish and asked how long it took to catch them.
The Mexican replied, “only a little while."
The American then asked why didn’t he stay out longer and catch more fish?
The Mexican said he had enough to support his family’s immediate needs.
The American then asked, “but what do you do with the rest of your time?”
The Mexican fisherman said, “I sleep late, fish a little, play with my children, take siestas with my wife, Maria, stroll into the village each evening where I sip wine, and play guitar with my amigos. I have a full and busy life.”
The American scoffed, “I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds, buy a bigger boat. With the proceeds from the bigger boat, you could buy several boats, eventually you would have a fleet of fishing boats. Instead of selling your catch to a middleman you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing, and distribution. You would need to leave this small coastal fishing village and move to Mexico City, then LA and eventually New York City, where you will run your expanding enterprise.”
The Mexican fisherman asked, “But, how long will this all take?”
To which the American replied, “15 – 20 years.”
“But what then?” asked the Mexican.
The American laughed and said, “That’s the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions!”
“Millions?" asked the fisherman, "Then what?”
The American said, “Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siestas with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos.”
The first time I read it, and every time since then, I've gotten goosebumps. It paints a picture of the ultimate form of sustainable income - complete work-life integration.
To be clear, this is very different from work-life balance.
There is no scale measuring the amount of work or life.
There is no mental clock keeping track of time allocated to work or life.
There is no black and white distinction between what is work and what is life.
It's nowhere close to being a "workaholic" for any skeptics out there.
There is no finish line, because a finish line would be disappointing.
Work-life integration flips the retirement equation on its head and slowly quiets the longing for “more” and amplifies the call for "better".
The integration leads to generating income from something that leverages natural gifts and skillsets, allows for managing risk of burnout, has a long (or indefinite!) time horizon, and allows time to be spent doing things that matter to you.
That has always seemed more appealing to me than "grinding it out" to a finish line and then calling it quits.
54 | Seesaws and "Enough"
Our kids love a seesaw - the constant ups and downs seem like Roller Coaster 101 for those under the age of 6.
The "pivot point" in the middle of the seesaw on which the entire board rests is the fulcrum.
The closer you get to the fulcrum, the harder it is to lift the other side.
The further away from the fulcrum, the easier it is to lift the other side.
A 4-year-old way out on one end can lift someone many times his or her size if that person is close to the fulcrum.
And vice versa, no amount of force applied near the fulcrum is going to lift the 4-year-old into the air.
Of course, I see a connection to finances. How can I not?
Income that is not accompanied by an ability to spend less than 100% of it is like applying force at the fulcrum of the seesaw while "enough" is sitting way out on the end.
Even for folks, especially for folks who have the highest levels of income*, the reality holds true.
The force matters, but only if the fulcrum is in a place to leverage it.
If the fulcrum is in the wrong spot, no amount of force is bringing the other end off the ground.
It's not about applying force, or generating ever-increasing amounts of income, until you retire, burn-out, or quit. It's about slowly adjusting the position of the fulcrum to see "enough" begin to come off the ground.
Of course, no seesaw is ever perfectly still, but once we know the mechanics, it's easier to predict which way we're headed.
When it comes down to it, I think deep down everyone just wants to have "enough", but it's all too easy to forget the role of force and the role of the fulcrum.
*I caught myself typing "fortunate enough, lucky enough, talented enough to have high levels of income" and realized my own biased towards "more" being the default best case scenario.
53 | Thinking Like a 10-Year-Old
Investing seems like it should be so much easier to understand.
As a kid, I felt like I understood it pretty well.
When you have money, you can choose to buy shares of stock of a company and over time you hope that money will grow to an amount that is bigger than what it was when you started.
I can still say I think I understood it as a kid, but man, did the world try to convince me that I didn't for a bunch of years.
No single thing can be blamed, but there are a bunch of things that can shoulder some of the responsibility for abstracting my 10-year-old self's definition.
The marketing of financial services firms. The fear-mongering of the media. The endless "fine print". The by-the-minute price quotes. The infinite number of options. The complicated terminology. The tax rules. The statements. The account types. The fake investments.
Every single one of those things slowly obscured that simple, accurate definition of "investing".
The reality is that even with a good baseline understanding of what it means to invest, the circus that is modern-day "investing" is mighty adept at leaving us dazed and confused.
It leads some to think investing is...
Riding the roller coaster of a single stock.
Sitting in the safety of a money market fund.
Making money without the risk of losing any money.
Doubling or tripling your money in a couple of years.
Borrowing to invest only to see it all slowly go to zero.
Trying to time the bottoms and tops of the market cycle to "buy low and sell high".
Hunting for the next hot investment or meme stock.
Buying and holding an index fund for the rest of time.
No wonder investing seems so hard - the way each of us define it is as if we're trying to say that badminton, soccer, basketball, and swimming are more similar than they are different because they are all "sports".
If we can get back to understanding and promoting the definition of "investing" that we all had when we were 10-years-old, I think it'll make us all better investors.
52 | Toilet Paper and Gold
In March 2020, during the peak moments of uncertainty and fear surrounding the COVID-19 pandemic, there were shortages of every imaginable consumer item.
Many things impacted small groups of people, but one shortage impacted every single human on the planet.
Toilet paper.
I can recall neighbors dropping individual rolls of toilet paper on other neighbors front steps to help share the available supply.
Sadly, there were some bad apples that saw the shortage as a business opportunity. Newsweek tells the story of one of them here.
It didn't take a genius or an expert economist to realize that hoarding toilet paper during a pandemic was pretty messed up.
There are some folks that had a medical reason to get more toilet paper than the average person at the time - I am not dogging on them.
I am dogging on the few folks who were hoarding a scarce resource in anticipation of everyone else having to beg or pay them for their abundance.
When toilet paper was the resource and a pandemic was the challenge, it was easy to see the lunacy and self-centered nature of the hoarding.
In spirit, the theoretical "holy grail" moment for gold isn't any different than hoarding toilet paper in March 2020, it's just become a little more socially acceptable through the generations.
Historically, I have found the economic arguments against owning gold compelling enough to pass on it.
Gold doesn't generate income like a business does year after year after year.
Gold has no practical role in improving our daily lives as a society.
If it doesn't do either of these things, then why own it?
But the part that really moves the needle for me is the fact that its value is primarily derived by society's aggregate fear of the future.
When you buy gold, you're hoping to profit off the fact that someone else will eventually be more scared than you are - it's the ultimate opportunity to round trip the fear-greed spectrum in a single decision.
That's not exactly a characteristic of a fulfilling life in my mind, so no, I don't own or plan to own gold and I don't plan to own stacks of toilet paper during the next pandemic either.