Best Financially or Best For You?

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Some people might think my job is to make my clients as much money as possible. Some people might think my job is to make my clients the highest rate of return on their investments as possible. Generating investment returns within a client-agreed-upon degree of risk is the job of an investment advisor, but as a wealth advisor, my job is two-fold. Not only do I serve as my client’s investment advisor, I’m also charged with being my client’s financial advisor. Of course, I’m always plenty focused on investment strategy, but I’m simultaneously focused on helping my clients get what they want out of their lives.

For example:

• How much cash should you hold? From a strictly financial perspective, conventional wisdom says three to six months’ worth of living expenses if you’re still working and one years’ worth of living expenses or more if you are retired. That is my baseline recommendation with my clients, too, but if you find yourself constantly worked up about what is going on in the world and holding a little more cash would lead to less stress during the day and better dreams at night, then go for it! It’s not necessarily best financially, but it may be best for you.
• How should your portfolio be allocated? Based on an investor’s age, stage in life, and withdrawal requirements, historical return patterns generally lead most good investment advisors to roughly the same recommended allocation, but what if bear markets cause you indigestion and angst to almost a medical level? Given current interest rates and bond yields, it is absolutely critical to have enough allocated to stocks to have a chance to sustain or grow a portfolio over the long-term and to have a shot at protecting your purchasing power against inflation, but within reason, if your indigestion and angst could be soothed by having a few more CDs and bonds and a few less stocks, then why not? It’s not necessarily best financially, but it may be best for you.
• How much should you withdraw? Financially speaking, it’s rarely advised to withdraw unnecessarily from your investment assets, but if you don’t, what is going to happen?  You may end up with some slightly happier heirs?  Your favorite charity may one day receive a bigger check? So often I see people do everything in their power not to withdraw money from their hard-earned assets because they are trying to keep their nest egg as big as possible. Now if a client’s financial stability or financial security is even remotely endangered by a potential withdrawal or their rate of withdrawals, I certainly raise the issue, but there are times after people have shared their dreams with me where my advice is for them to simply spend some of their money. You’ve always wanted that sports car? Get the car. You’ve always wanted to take your entire family on a beach vacation? Take the vacation. You want to help your family financially now when they need it versus later after your death when they potentially won’t? Help your family now. You want to give a substantial gift to a charity or cause you support so you can see the impact? Give the gift. It’s not necessarily best financially, but it may be best for you.

In my opinion there are two kinds of returns: your return on your investments and your return on your life. I would advise that you always be reasonably cautious when it comes to your financial situation, but when it comes to your comfort, confidence, happiness, satisfaction, and fulfillment, strongly consider that what may be best for you may not always be best for you financially. Return on investment is important, but so is return on life!

-Tom