What We Really Need Our Money to Do for Us
“The person who mistakes “money” for “wealth” will live a life accumulating things, all the while mistaking a life of owning for a life of living.”
Cullen Roche, a former Emotional Balance Sheet podcast guest and author of Pragmatic Capitalism, emphasizes this point throughout his work and speaking.
The best financial investment most of us will ever make is in ourselves. The key to understanding your value is understanding how you are uniquely valuable to other people. In this interconnected world, you have something in which other people can find value.
So, how do you figure out what this means to you? Consider these two elements: what do you like to do, and are people willing to pay for it?
Figuring out your value means different things to different people. We all have different talents and different specialties. The best investment you’ll ever make is trying to understand and maximize the value you can contribute to others.
Why We Save
Life does not begin when we start our careers in our early 20s and end at 65. Life happens all along the way.
This time stretch can introduce many transitions into our financial lives. Our financial needs evolve and require a certain level of certainty for us to plan appropriately for the future.
The reason why we save during this stretch of time is to be prepared for life’s big events.
A Series of Sprints, not a Marathon
While our careers and working years can span a long period, it doesn’t necessarily mean it’s a marathon. Instead, life becomes a series of sprints that comprise what looks like one long race. The concepts of buy and hold or stocks for the long run sound great in theory, but life doesn’t work out that way.
Portfolio construction isn’t about assuming that we’re involved in a marathon. Given the time risks involved with portfolio management, we have focused on the following tools at TAMMA to help achieve risk optimization.
Methodology—maintaining a process and plan that helps you structure a portfolio for achieving your personal and financial objectives, which are supported by your purpose.
Strategic diversification—structuring a core portfolio with several different cash-flow streams to help create some level of stability working with your objectives.
Tactical diversification—the execution of a portfolio process and plan that helps reduce exposure to uncertainty due to market and time risk.
Diversification is about learning to hate some part of your portfolio all the time. But that’s how you know it’s working. Said differently, the imperfect portfolio you can stick with will perform better than the perfect portfolio you can’t stick with.
Portfolio Management Isn’t About Beating the Markets
Most families don’t need to focus on “beating the market.” Instead, they need to optimize their personal return by investing in themselves and then allocate their savings in a prudent financial planning-based approach consistent with their purpose and objectives.
A disciplined financial planning approach includes the following:
Invest in yourself and optimize your personal return.
Construct a portfolio using a financial planning-based foundation to establish a clear purpose, including personal and financial objectives with time horizons and realistic expectations.
Establish a realistic risk profile, including strategic and tactical diversification, to construct a customized portfolio consistent with your planning needs and behavioral limitations.
Remember, despite mainstream and social media channels, your portfolio is not your get-rich-quick scheme.
Good Portfolio Management Starts with Good Financial Planning
Any sound portfolio process starts with good financial planning. Good financial planning centers on optimizing your family’s financial resources to achieve your purpose and personal and financial objectives while managing risks.
We all have future liabilities we need to meet, and we try to match our income and portfolio returns to match those future liabilities. The problem with this process is that our future liabilities are uncertain, and our future income and returns are also uncertain.
So, what can you do? At TAMMA, below are a few key aspects that we work well with families when optimizing our financial planning process:
Automate your plan when possible. Your behavioral biases will be your worst enemy.
Always contribute to your plan.
Never forget that your portfolio is part of your life but is not your whole life.
The battle to understand money is won and lost within your mind.
Remember, you are human, and humans are irrational. Therefore, markets are irrational; however, that doesn’t mean you have to be the one constantly making irrational decisions.
At TAMMA, we build portfolios to help maximize return on life, not necessarily return on investments.