Relationship with Money
A blog that knows money is more than numbers
131 | Bigger Barns
The "how much is enough?" question has been around since the advent of money and it will remain til the end of time - it's too personal and abstract to work any other way.
One place that many people have referenced to try and construct an answer is the following passage of the Bible...
Luke 12: 13-21
Someone in the crowd said to him, “Teacher, tell my brother to divide the inheritance with me.” Jesus replied, “Man, who appointed me a judge or an arbiter between you?” Then he said to them, “Watch out! Be on your guard against all kinds of greed; life does not consist in an abundance of possessions.” And he told them this parable: “The ground of a certain rich man yielded an abundant harvest. He thought to himself, ‘What shall I do? I have no place to store my crops.’ “Then he said, ‘This is what I’ll do. I will tear down my barns and build bigger ones, and there I will store my surplus grain. And I’ll say to myself, “You have plenty of grain laid up for many years. Take life easy; eat, drink and be merry.” ’ “But God said to him, ‘You fool! This very night your life will be demanded from you. Then who will get what you have prepared for yourself?’ “This is how it will be with whoever stores up things for themselves but is not rich toward God.”
Maybe you read that passage and think it's out of date and doesn't apply to our conversations and relationships with money.
Maybe you read it and find it quite easy to see a bank account, a 401k, real estate, or an ownership stake in a business as modern-day barns that store our surplus assets.
But even if the metaphor is easy for you to see, the practical application of it is as complicated and nuanced as it gets.
Reducing the concept of "bigger barns" to an individual “heart" issue seems like a cop out - like we are letting ourselves off the hook for transparent conversation and real transformation in our relationship with money.
But attempting to quantify it with hard numbers seems like a fool’s errand that ends in arbitrary lines and harsh judgments of our own or others' relationships with money.
As I reflect on it, I don’t pretend to have any answers, but I have so many questions…
If financial wealth is what we need compared to what we have accumulated, how do our thoughts about what we need impact whether we have a second barn or not?
Can you create a second barn by needing less so that what you have accumulated stretches further?
Can you eliminate a second barn by needing more so that what you have accumulated doesn’t last as long?
Does the nature of what you have accumulated - cash, investments, real estate, or owning a business - impact whether your assets are more or less like a second barn?
Does living off only the income of the assets you have accumulated count as a second barn?
What about accumulating enough assets that you never again have to reduce your spending or or even reflect on the quality of it?
If you don’t know you have a second barn, does it count as second barn?
If one person has a second barn, and another person has an identical financial profile, then do they also have a second barn?
If someone passes away and you receive the equivalent of a second barn as a result, do you immediately have a second barn? Or can it become a second barn over time?
Can a certain level of income count as a second barn, particularly if what you need is only a tiny fraction of that level of income?
Even if you give away most of your income, is that income stream like a second barn because you experience the security and power that comes from retaining control and discretion over the resources?
If you use accumulated assets to purchase an income stream, does that make them more or less like a second barn?
If your income is more variable than someone else with the same accumulated assets, does that that make your assets feel like less of a second barn?
Still no answers - only questions that feel like they are worth discussing.
130 | A Statement of Belief
In a world where most everyone wants most everything to be free, it's not surprising that investment strategies have been reduced to minimizing costs.
The expense ratio is a crude measurement of resources spent by a fund to generate investment returns.
And it has become the "whack-a-mole-hammer" for the do-it-yourself investor and the bane of existence for a fund manager in any investing conversation.
Contrary to popular belief, it does not represent fees that are arbitrarily deducted from returns by a fund manager or a financial advisor.
The expense ratio is only a back of the envelope calculation completed after the fact to summarize money spent by a fund visiting, meeting, analyzing, and administrating the actual investment in companies across the world.
The expense ratio is not someone else's "cut" of your returns.
This feels nuanced, but I think it's important.
Lower expense ratios have been found to correlate with higher returns, but they don't cause higher returns.
Finding the lowest expense ratio is more a statement of belief that effort and research don't lead to higher returns than it is a discount code to be used at checkout.
Of course, as costs go down, intentionality tends to decrease too, but that's a more nuanced conversation for another day.
129 | No Tweaks
It's one of the hardest investing concepts to grasp because it goes against every grain inside and outside of our being.
Marketing from financial services firms tempts us to tweak.
Daily price quotes, other people talking about their investments, and market-wide downturns tempt us to tweak too.
But when we think about making tweaks, our gut instinct is to say, "That stock or fund has performed well over the past few years - I want more of it in my portfolio."
Then without even meaning to do it - we're buying high and greasing the skids to sell low.
Read that again, because it's literally the exact opposite of the single piece of advice that everyone in the world has heard about investing.
We don't refrain from tweaks because we're lazy.
We do it because it's the hard thing to do, which is often a good sign that it's the secret to success too.
128 | A Spectrum of Sustainable Income
Income is any money coming into your household that is above and beyond what you have already saved or accumulated.
It's the purple bar.
For many, it has a way of tethering lifestyle to it in either direction. More income equals more spending. Less income equals less spending.
I think this is because there is something less psychologically taxing about using income for spending than there is dipping into what you have saved for spending.
Most folks are tempted to think it is a matter of maximizing income, but I'd challenge that it's more a matter of maximizing the sustainability of income.
Income that has no shelf life - no expiration date, no defined term, no day of reckoning on the horizon - takes personal financial freedom to a different level than any raise or signing bonus or new client can provide.
A dollar is a dollar no matter where it comes from. But the chances that additional dollars will continue showing up is how I'd measure sustainability.
Here's a rough spectrum of income sources (or purple bars!) from least sustainable to most sustainable...
Income from a gift - much like the $20 bill you find in your pocket, income from a gift is surprising, novel, and fun, but hard to depend on repeating forever.
Income from the sale of something - we're not talking about selling a service or inventory as part of a business model. We're talking about selling a business, a car, a property, a collectible, or anything else that you own that is valuable for a one-time profit. Sometimes the profit is enormous, but usually the number of things you can sell is finite.
Income from a gig - often it's the only way to get started in a new career or venture, but at least initially, it's as sustainable as your marketing efforts or your existing network allow it to be.
Income paid on an hourly basis - an upgrade from a gig, but there are a finite number of hours in the day. If your hourly rate is sufficient for your lifestyle, then move this further up the list. If you're unsure whether it is or not, then you're on a slippery slope of endlessly trading time for money.
Income from something you're dying to quit - at best this income is paying the bills, and at worst it's distorting your view towards work, money, time, and relationships. This one feels like a sneaky unsustainability that is often accommodated and ignored at the expense of almost everything else.
Income from a business that is no longer relevant or profitable - this one is a matter of time - how much longer until the oil well runs totally dry?
Rental income from a property you are managing into disrepair - this is the real estate version of the previous one. From an income perspective, this one is less about the current tenant and more about who's next when the current one inevitably leaves?
Income from a business that is not yet relevant or profitable - this one is a matter of time - how much longer until your patience, perseverance, or energy gives out?
Income from a physical activity - Just ask a 38-year-old professional athlete how sustainable they believe their salary to be.
Salary or fixed compensation from a specific role - more sustainable in the near term, less sustainable in the long term. When things hit the fan, management can't help but eliminate fixed costs. This one is as sustainable as your ability to add value for management.
Bonus, commission, or variable compensation from a specific role - less sustainable in the near term, more sustainable in the long term. Taking responsibility breeds sustainability and getting paid for production means you're responsible for what does or doesn't happen. This one is as sustainable as your ability to add value for clients.
Rental income from a property you are maintaining well - a waiting list is a sign of sustainability. If people are lining up to live there, that's a good sign. And it seems likely that people will always need a place to live.
Dividend income from an established business in which you are a key contributor - income that comes from the profits of a business directly to its owners. Often there is significant upside potential as a key man or woman, but the concentration risk of putting all effort and energy into one business has a way of undermining sustainability.
Income from something that you'd be willing to do for free - in terms of exchanging effort for income, it's hard to think of something more sustainable than transforming "effort" into "pleasure".
Dividend income from a business that does not require you for its operation - Of course, dividends are never guaranteed, but once you start receiving them from an ever-growing list of companies, you can begin depending on them in a different way.
Interest income - income that is required to be paid by a contract and ensures you're first in line to get paid if the business hits rough patch. The more of these arrangements, the merrier from a sustainability perspective. A healthy appreciation for inflation and possible loss of purchasing power is the only prerequisite with this income.
Pension income from a company - there's a reason you don't find many of these anymore, the sustainability was a holy grail for a former employee and an anchor around the neck for the business still trying to innovate and operate.
Social security benefits - it's hard to find something that can be sustained longer than an inflation-adjusted monthly payment from the government against whom all other creditworthiness is judged.
Of course, income is only part of the story - if you spend more than you make, then no level of income is sustainable.
But if you're moving up this spectrum, chances are you can depend on your purple bar to be around as far as you can see into the future.
127 | The Line of "Free" Returns
When it comes to evaluating investment performance, it's easy to get confused with benchmarks.
How am I doing relative to the S&P 500? Or Apple? Or CDs? Or the Russell 2000? Or my neighbor?
On their own, none of these are particularly helpful benchmarks.
I'd argue that the benchmark is the investing strategy that requires the least time, attention, and money to implement.*
If you are invested in 100% stocks then you can compare your returns to the average of all the publicly-traded stocks in the world to confirm that you're capturing the "free" returns that are available to you (and everyone else!).
If you are invested in 100% bonds then you can compare your returns to the average of all the publicly-traded bonds in the world to draw similar conclusions.
And if you are invested in a blend of stocks and bonds, then there is a clear line connecting "all the stocks" and "all the bonds" that serves as The Line of "Free" Returns.
Of course, "free" is a loaded term.
Just because the financial cost of investing continues to trend to $0, doesn't mean there aren't psychological and emotional costs to investing - Morgan Housel describes the fact that nothing's free better than anyone.
Follow the link below to see how your personal investment performance compares to the "free" returns that are available to you.
And don't make Mistake #1 by assuming that your professionally-managed investments are capturing the "free" returns!
*In my mind, interest paid on cash in a bank account does not count as "investing". Nor does owning something that can't generate revenue (and profits!) for its creation of real human value in the world (i.e. gold, cryptocurrency, commodities, etc.) - those are better described as "speculating".
126 | Nothing’s Free
An excerpt from The Psychology of Money by Morgan Housel...
Everything has a price, and the key to a lot of things with money is just figuring out what that price is and being willing to pay it...
...The S&P 500 increased 119-fold in the 50 years ending 2018. All you had to do was sit back and let your money compound. But, of course, successful investing looks easy when you're not the one doing it.
"Hold stocks for the long run," you'll hear. It's good advice.
But do you know how hard it is to maintain a long-term outlook when stocks are collapsing?
Like everything else worthwhile, successful investing demands a price. But its currency is not dollars and cents. It's volatility, fear, doubt, uncertainty, and regret—all of which are easy to overlook until you're dealing with them in real time.
The inability to recognize that investing has a price can tempt us to try to get something for nothing. Which, like shoplifting, rarely ends well.
Say you want a new car. It costs $30,000. You have three options: 1) Pay $30,000 for it, 2) find a cheaper used one, or 3) steal it. In this case, 99% of people know to avoid the third option, because the consequences of stealing a car outweigh the upside.
But say you want to earn an 11% annual return over the next 30 years so you can retire in peace. Does this reward come free? Of course not. The world is never that nice. There's a price tag, a bill that must be paid. In this case it's a never-ending taunt from the market, which gives big returns and takes them away just as fast.
Including dividends the Dow Jones Industrial Average returned about 11% per year from 1950 to 2019, which is great. But the price of success during this period was dreadfully high. The shaded lines in the chart show when it was at least 5% below its previous all-time high.
This is the price of market returns. The fee. It is the cost of admission. And it hurts.
Like most products, the bigger the returns, the higher the price.
Netflix stock returned more than 35,000% from 2002 to 2018, but traded below its previous all-time high on 94% of days. Monster Beverage returned 319,000% from 1995 to 2018-among the highest returns in history—but traded below its previous high 95% of the time during that period.
Now here's the important part. Like the car, you have a few options: You can pay this price, accepting volatility and upheaval. Or you can find an asset with less uncertainty and a lower payoff, the equivalent of a used car. Or you can attempt the equivalent of grand-theft auto: Try to get the return while avoiding the volatility that comes along with it.
Many people in investing choose the third option. Like a car thief - though well-meaning and law-abiding - they form tricks and strategies to get the return without paying the price. They trade in and out. They attempt to sell before the next recession and buy before the next boom. Most investors with even a little experience know that volatility is real and common. Many then take what seems like the next logical step: trying to avoid it...
...The irony is that by trying to avoid the price, investors end up paying double...
...The question is: Why do so many people who are willing to pay the price of cars, houses, food, and vacations try so hard to avoid paying the price of good investment returns?
The answer is simple: The price of investing success is not immediately obvious. It's not a price tag you can see, so when the bill comes due it doesn't feel like a fee for getting something good. It feels like a fine for doing something wrong. And while people are generally fine with paying fees, fines are supposed to be avoided. You're supposed to make decisions that preempt and avoid fines. Traffic fines and IRS fines mean you did something wrong and deserve to be punished. The natural response for anyone who watches their wealth decline and views that drop as a fine is to avoid future fines.
It sounds trivial, but thinking of market volatility as a fee rather than a fine is an important part of developing the kind of mindset that lets you stick around long enough for investing gains to work in your favor.
Few investors have the disposition to say, "I'm actually fine if I lose 20% of my money." This is doubly true for new investors who have never experienced a 20% decline.
But if you view volatility as a fee, things look different.
Disneyland tickets cost $100. But you get an awesome day with your kids you'll never forget. Last year more than 18 million people thought that fee was worth paying. Few felt the $100 was a punishment or a fine. The worthwhile tradeoff of fees is obvious when it's clear you're paying one.
Same with investing, where volatility is almost always a fee, not a fine.
Market returns are never free and never will be. They demand you pay a price, like any other product. You're not forced to pay this fee, just like you're not forced to go to Disneyland. You can go to the local county fair where tickets might be $10, or stay home for free. You might still have a good time. But you'll usually get what you pay for. Same with markets. The volatility/uncertainty fee-the price of returns—is the cost of admission to get returns greater than low-fee parks like cash and bonds.
The trick is convincing yourself that the market's fee is worth it. That's the only way to properly deal with volatility and uncertainty-not just putting up with it, but realizing that it's an admission fee worth paying.
There's no guarantee that it will be. Sometimes it rains at Disneyland.
But if you view the admission fee as a fine, you'll never enjoy the magic.
Find the price, then pay it.
125 | The Case for Ignorance
For some reason, many people think they should be more in tune with their investments than they are.
It's some mixture of guilt, embarrassment, or feeling like “being in tune” is what it means to be an adult.
But I'm not certain this is a reasonable or appropriate expectation.
We don't expect everyone to be able to play a guitar riff. Or cook a gourmet meal. Or run a half marathon. Or moderate a heated discussion.
I don't know why investments should be any different, but scrolling stock tickers on CNBC and annual investment updates with an advisor often contradict this belief.
Once we've cared for a few important basics, I'd argue that the less we know, the better off we will be.
Most investment performance analysis reduces investment return to a single number.
"For the past 10 years, this investment has returned 8% annualized."
But that is comically misleading - it's not far from assuming a tombstone with a birth date and a date of death is the entire life story of the person who passed.
One way to an 8% return over a decade is investment gains for 7 or 8 years followed by investment losses to close out the decade. This could look like...
But how cheap is the line?
It doesn't begin to capture the emotion of the last two years - a line doesn't capture the emotion of feeling less wealthy than you once were. Or the envy of your prior self. Or the temptation to make a change. Or the paralysis of not wanting to do anything for the next few years until you get back to your arbitrary high-water mark.
Another way to an 8% return over a decade is investment losses or modest gains for 7 or 8 years followed by phenomenal investment gains to close out the decade. This would look like...
But this line is as cheap as the first one.
It fails to capture the second-guessing, self-doubt, frustration, or temptation to abandon the plan for the first 7 or 8 years of the decade. There aren't many feelings in finances that are harder to navigate than the persistent question of "Am I doing this all wrong?" - and assuming that the tuned-in investor can push that question off for 8 years to experience the pay off in years 9 and 10 is extending quite the benefit of the doubt.
Another way to an 8% return over a decade is lack of awareness around exactly how it came to be. This would look like...
At seeing those starting and ending points, I think most people would be surprised, amazed, grateful, or even struggle to comprehend how it happened. No second-guessing, no comparison to others, no wondering what could have been, and no arbitrary high-water marks. Just awe over progress that came from money working for them.
It doesn't take a PhD to realize which set of emotions you'd prefer to experience over a decade or lifetime.
Once you've cared for some basics, I think it's OK to be a little ignorant.
124 | Spending Observations
Financial wealth you have accumulated means nothing without the context of what you need.
What you need - or expect - is best reflected by what you spend.
Reflecting on a single month of spending is misleading. Reflecting on a year of spending is interesting. Reflecting on a few years of spending tells a story.
Some spending happens on purpose. Some by accident. Some out of obligation. Some with discretion. Some happens once. Some happens over and over again. But it all counts as spending.
Most feelings and emotions around spending point back to two questions - is my level of spending viable? Does my spending drive lasting contentment?
Many "one-time" things can make for one recurring expectation. There is no end to the list of things that we can spend on.
Debt is a tool to spread cost over time, which is a polite way of saying debt allows you to buy something that you can't afford right now.
Paradoxically, debt often decreases contentment, while generosity often increases contentment.
It's easy to think you'll be generous once you have "enough". I think you'll begin to more clearly see "enough" once you are generous.
A good filter for any spending decision is “how will this change my expectations in the future?”.
Some spending is a standalone event and some spending begets more spending - the latter is the one that allows our expectations to change without even realizing it. The former is not as big of a deal as we often tend to make it.
It's easy to think that "spending less" is good and "spending more" is bad - I'm more interested in the non-financial benefits that accompany spending. The best spending leads to non-financial wealth.
A crude quality of spending metric is hours of contentment per dollar spent. Hours spent anticipating and reminiscing can count in the equation too.
Most everyone says they prefer spending on experiences over things, but that's not how everyone actually spends.
Inevitably, you will regret some spending decisions - forgive yourself for them, but don't totally forget them.
Knowing where you spend dollars provides a freedom that reveals itself in the tighter times, "we need to spend less on _________" is a sneaky freedom that is 100x different from "we need to spend less". *If your income has never decreased, you probably can’t appreciate this one.
It's a lot easier to say "no" to 1 thing than it is to say "no" to 1,000 things. Spending $5,000 less on a home or a car or any other big thing is the same as saying no to a daily coffee for almost 3 years.
No one ever built financial wealth by accumulating sign up bonuses for credit cards or getting 5% on travel.
Missing one monthly budget never wrecked anyone's finances. Missing every month's budget probably means you have a bad budget.
A built-in governor for lifestyle creep is to buy (or wait to buy!) luxury items once you have non-wage income.
If you fear seeing the monthly credit card balance, switch to paying it down weekly or even daily for a season. Decreased fear and increased awareness is a good combo.
Trying to predict someone’s financial well being by observing a few spending decisions is about as reliable as a 365-day forecast would be from a meteorologist.
123 | Thoughts on Our Pricing
Of course there is a fee for our services.
There are two primary reasons that we charge a fee - credit to Carl Richards for saying them so concisely.
The first is that clients who pay for advice actually pay attention to advice.
Paying is an expression of enrollment in the process. And enrollment in the process is the leading indicator of future success.
The second is that making a profit gives us "permission" to continue doing this high impact work indefinitely.
Without some profit, the work would be a hobby, which is only sustained by outside resources. That is no way to run a business or even a household.
Our fee is a simple, flat fee that everyone can understand.
That is rare in the industry.
It's scaled loosely based on complexity and ability to pay, so that we can serve a diverse group of clients forever.
That is rare in the industry too.
You will not find many people who have thought more intentionally about client-centered pricing than we have - just ask them.
122 | But How Do I Actually Do It?
Detailed projections love to summarize financial well-being in a single metric, which is often a probability of success.
The trouble is that all of the context is lost the moment this happens.
Imagine if midway through the third quarter, one of the data analysts informed Patrick Mahomes that the Chiefs had an 82% chance of winning the game.
For a fleeting moment, he might have some peace of mind about progress, but immediately thereafter he's going to have questions about how to actually win the game.
He doesn’t need someone to tell him the likelihood that he’ll win.
He needs someone to help him brainstorm the specific plays that they need to run on each of the remaining drives.
He needs someone to help him decide what players need to be around him on the field.
He needs to be reminded of the work they did in practice to prepare for the last 15 minutes of the game.
He needs someone who can have a conversation in real football terms, not math terms that ignore the game that is still being played on the field.
Whether it's football or finances, you still have to play the game regardless of what the analytics say.
121 | Reality Eats Speculation for Breakfast
I don't have a clue how investment returns or cost of living will change over the next few decades.
Even if we trick ourselves into using historical figures, the reality is that assumptions are a nice urban walking trail while reality is a strenuous hike with boulders to climb and weather to endure.
The way you generate income and set money aside isn't any more certain either.
Gutting out a miserable career in the name of modest raises and bonuses each year is not a win in my book.
Nor is pretending that our savings rate will remain steady year after year when life has a tendency of surprising us on the good and bad side all the time.
At best, these kinds of speculation put us on the hook for knowing more about the future than it is possible to know.
At worst, they lead us down the rabbit hole of debating speculative assumptions or trick us into projecting a hypothetical future that will torment us year after year.
A detailed projection slyly turns assumptions into gospel and turns a calculator into a "plan".
On the other hand, it's hard to argue what has happened in the past.
People who like their work will find that their income is more sustainable.
People who are intentional with spending will find that they experience more contentment.
People who have saved before will find it easier to save the next time.
People who have navigated seasons of investment loss will find it easier to be patient in the next downturn.
Reality is hard to argue, easy to access, and practical to reflect upon - and establishing a common understanding of it is the only way to move forward into an uncertain future.
120 | Flickering Questions
Most of us have questions about money and purpose deep within us that flicker like a candle.
Why does what I feel in my gut always feel so different from what we discuss in a finance conversation?
Why does it feel like we can't "catch up"?
There are so many things competing for our resources. How do we decide what should come first?
Why do I always get overwhelmed by money conversations?
Why does this career lack the purpose that I expected to experience?
Is this really all there is to being "good with money"?
Some of these questions are difficult to say out loud because, at best, it's hard to find the words or, at worst, it seems like a silly question with an obvious answer that you should know.
But these questions are the essence of our relationship with money - a flickering candle that only reveals itself if we allow it to shine.
The problem is that detailed plans and projections are the ultimate candle snuffer.
Instead of creating an environment for the candle to burn brighter with a vulnerable, but honest reflection, a detailed projection quickly snuffs out the real questions allowing "inflation", "market risk", "Social Security", and "life expectancy" to rush in and suck all the oxygen out of the room.
Too many numbers and assumptions inevitably confuse even the most financially-savvy Muggles to a point that it's hard to ask the first question.
Snuffing out the real questions and restricting the conversation to clarifying assumptions is no way to talk about money, but that’s what we’ve settled on as an industry.
119 | A "Financial Plan" is a Feeling
We’ve tricked ourselves into thinking that a "financial plan" is a document.
Some of the blame can be placed on our need to control the future - a document makes this seem more possible.
Some of the blame can be placed on an advisor’s need to prove that they’ve done something - a document provides a nice façade.
But time and time again, the word “plan” means something wildly different for everybody.
For some, it’s that feeling of seeing all of your accounts in one place instead of anxiously wondering if you've lost track of a couple.
For others, it’s moving from blind accumulation to a clearer feeling of purpose accompanying each dollar that is saved.
And for others, it's just talking about finances in a safe space, because it's helpful to get jumbled thoughts out of your head every so often.
It’s seeing that large bill and not skipping a heartbeat because you knew it was coming and was a normal cost of doing life.
It’s that bit of financial news or that stock tip from a friend that you can immediately dismiss as a waste of time.
It's knowing that even when finances feel chaotic, that you have a habit of reviewing and reflecting on your money life that will eventually put everything back into proper context.
“It feels so good to have a plan” is a universal experience of most everyone, but only because it’s a universal feeling.
118 | You Get What You Pay For
Some people want investment management and nothing else...and that's OK.
When this is the case, it might make sense to pay an AUM fee.
But when it comes to money, so many people have a feeling in their gut that investments won't and can't address, and that’s where the narrative starts to break down.
The disconnect between this feeling and the solutions that financial advisors have been offering for a couple of decades is a primary reason we've grown so skeptical of financial advice.
Investments don't address the Sunday Scaries. Investments don’t address a disappointing spending decision. Investments don’t address the stress of running life without an emergency fund or having your wings clipped by debt. Investments don’t help you get on the same page with your spouse or give you the courage to make a change.
But the fee and the way advice has been marketed - comprehensive, holistic, personalized - implies that they should.
Deep down we desire so much more in our relationship with money, but we’ve been trained to pay for investment advice and then hope everything else takes care of itself.
It’s time to start paying for the things we want, and trust that the investment advice will take care of itself.
Our fee is a simple, flat fee that is loosely based on complexity and ability to pay, but is never based on a percentage of assets under management.
117 | Are We Going to Beat "The Market"?
Honestly, I don’t know.
And honestly, I don’t care - even though sometimes I’m tempted to care.
But the moment you tack a fee onto assets under management is the moment you’re putting yourself on the hook to make it happen - or at least begging someone to ask the question.
Of course I want the best investment returns just like every other competitive, Type A, perfectionist-leaning achiever out there, but money is about so much more than investment returns.
I’m interested in helping people engage with how much is enough, use their money for things that actually contribute to building their life, and avoid getting stuck on the perpetual pendulum of hoarding and consuming.
Beating the market is an abstract and confusing metric that doesn’t get me closer to any of those goals.
But when you’re paying for returns, it’s hard to acknowledge that reality.
Our fee is a simple, flat fee that is loosely based on complexity and ability to pay, but is never based on a percentage of assets under management.
116 | Hiring a Plumber to Build a House
I'm elaborating on a good friend's riff that I read here.
Even if a plumber was the best contractor in the city, it would be weird if they said, “I’ll do the plumbing for $400,000 and, while I’m at it, I’ll build you a house for free.“
But that’s what happens every time we pay a fee for assets under management, but receive help on everything else related to money.
If it were just math, it wouldn’t matter.
But it’s not just math.
As Carl Richards would say, the way we bill tells a story.
And the plumber giving away free houses tells a story that makes the plumbing seem more important than the rest of the house.
If you want a house, you pay for the house and sub out the detailed work.
If you want help with your "money life", it probably makes the most sense to hire a contractor instead of a plumber.
Our fee is a simple, flat fee that is loosely based on complexity and ability to pay, but is never based on a percentage of assets under management.
115 | All Roads Lead to the Biggest Rollover
Everyone is susceptible to the siren call of “more”, and there aren’t many things that call an advisor louder than a big rollover check, the sale of a business, or a substantial inheritance when they’re charging a fee for assets under management.
It’s why financial advice has become so tethered to the highest net worths and the most assets.
It’s easy to say the advice is the same but behind the scenes, the highest net worths are either getting all the attention or they're overpaying.
And the lowest net worths find the attention is waning or the offering is becoming less and less relevant over time.
Once an advisor's fee is tied to assets managed, it’s hard to measure success without tallying up assets gathered, and it’s hard to look at potential clients without seeing different-sized dollar signs floating above their head.
Our fee is a simple, flat fee that is loosely based on complexity and ability to pay, but is never based on a percentage of assets under management.
114 | The Ultimate Conflict of Interest
If you're a good saver, I will encourage you to keep it up or maybe even help you slow it down.
If you need to save, I will help simplify the logistics of saving and inspire you to actually make it happen.
I don't want you to save out of fear, save to create a war chest for doomsday, save because you don't have anything better to do, or save so I can get paid more.
I want you to save because your savings rate reveals so many over critical things - your ability to live within your means, your ability to control lifestyle creep, your ability to say yes to unexpected things, your ability to pivot to something different, your ability to manage expectations, and your ability to keep living the life that you desire to live.
I want you to save...
Because that is how you experience financial well-being.
Saving is hard enough on its own.
If you saving increases my fee, are we actually pulling the rope in the same direction?
Our fee is a simple, flat fee that is loosely based on complexity and ability to pay, but is never based on a percentage of assets under management.
113 | On the Hook for The Wrong Thing
Once we’ve cared for some basic principles of investing, the amount of control that we have over investment outcomes is alarmingly less than any of us probably care to imagine.
Managing investments creates an implied assumption that we are impacting results by pulling special levers that don’t actually exist.
If we’re looking to attribute wins and losses to the correct people, then good and bad investment performance has no business being assigned to an advisor, when the overwhelming majority of investment outcomes are driven by...
Clear expectations.
Having sufficient cash on hand.
Behavior.
And patience.
We review investment options, we review investment performance, we give investment advice, and even help adjust your investment allocation if needed, but we do not manage investments.
112 | Your Plate Isn't Getting Any Bigger
Personal preferences, social responsibility, environmental concerns, and convictions of faith are some of the endless list of things influencing investment decisions in 2023.
Managing investments creates the unfortunate dynamic of having to sell something and disclose all the risks.
The trouble is that there are too many things to sell and too many risks to disclose.
Seth Godin would say, "The buffet line is far too long and the plates aren’t getting any bigger."
Our world is quickly changing to one where people have already been sold on their approach and just need help identifying the biggest risks.
I can’t keep tabs on all the options on the buffet line, but I can help you decide what to put on your plate.
There is no need to limit the buffet line or try to restrict everyone to Italian food when all you really need to do is help people fill their own plate with what they want while giving them a couple nutrition tips along the way.
We review investment options, we review investment performance, we give investment advice, and even help adjust your investment allocation if needed, but we do not manage investments.