Portfolio performance may not be best check
on progress.
What if, the next time you visit your financial
advisor, you don't ask about your portfolio's performance? What
if instead, you ask your advisor each quarter to give you the
latest odds on reaching your long-term goals?
Most experienced investors have been trained to
focus on their portfolio's quarterly and annual returns.
That's all well and good, but making money on your
investments is not an end in itself, right? The fact is regardless
of a 3 percent decline in a year or a 9 percent gain in a quarter
in a portfolio's value, there's a bigger question investors –
particularly business owners, entrepreneurs and other high-net
worth investors – should never lose sight of: Am I
on track to achieve my goals?
We're all out to gain some degree of financial
freedom, to be able to do things that are important to us or provide
financial security for others. We don't work or invest just to
amass more money. And once you've accumulated wealth through a
career or through running your own business or selling a business,
you're going to want to start making decisions about what is important
to you in the future. Some of those basic financial objectives
include a certain income level after retirement or after exiting
a business, leaving an inheritance, and perhaps you'll want to
have money for future charitable contributions.
Coming up with the objectives on your own or in
discussions with a financial consultant may be the easy part.
The problem is that between running a business or advancing a
career and managing your finances, it can be too easy to take
your eye off of your long-term priorities and the path to achieving
those goals — and that includes your goals for the next
10 or 20 years and your vision for your legacy perhaps 100 years
from now.
If you stay focused on your objectives, however,
then when you meet with your financial advisor you'll have a different
conversation than you're used to.
Typically, for example, in your initial encounters,
a financial advisor will ask questions aimed at gauging your risk
tolerance. Often your responses result in a classification, such
as income investor, growth investor or aggressive growth investor.
Then, your investment advisor will design a portfolio that ensures
you suffer the maximum risk you can stand.
This focus on performance and risk tolerance means
that, in subsequent visits with your advisor, you'll be talking
about returns and other aspects of the portfolio's performance.
If you beat the market, you and your advisor will pat yourselves
on the back, and if you lag the market or, as in recent years,
if the entire market tanks, you'll commiserate and, perhaps, make
a few adjustments and hope for the best next quarter or next year.
But, what if you stay focused on your goals and
the path to achieving those goals? If your goals remain at the
forefront, then you'll still, of course, be interested in the
performance of your investments. But going beyond the performance,
you need to align those results with your objectives. You'll want
your financial advisor to tell you the odds of achieving your
financial goals and provide resources to help you meet those goals.
And, as you monitor investment returns, you'll continually want
to know if you are on track to meet your goals or if you are drifting
off course. If you are off course, you'll want your financial
advisor to help you determine what adjustments to make to get
back on course and increase your odds of success. If, for example,
the value of your investments declines 8 percent in a year, you
could just assume future returns will exceed expectations and
hope you'll recoup the losses over time. Or, by staying in touch
with your long-term objectives, you could adjust your goals to
increase your odds of success.
If you keep your dreams and aspirations at the forefront,
you'll always be asking your advisor the right questions: What
are the odds of my investment strategy getting me to my goals?
Am I still on track to realize my dreams? Do I need to adjust
my goals? Do I need to adjust my investment strategy to increase
the odds of achieving my objectives?
Remember investing isn't about just making more
money, it's about helping you reach your dreams. If you keep those
goals at the forefront, you can increase the odds that your financial
plan will help you reach those objectives.
Christopher G. Snyder and Haitham "Hutch"
E. Ashoo are principals of Pillar Financial Services in Walnut
Creek. Contact them at 925-356-6780.
DOWNLOAD
A PDF VERSION »
|
