Advisor Commentary

Brewing the Perfect Portfolio

Have you ever walked into a Starbucks or a local coffee shop and felt a bit overwhelmed by the Coffee Connoisseurs slinging their lingo?  “I’ll have a tall half-skinny half-1 percent extra hot split quad shot (two shots decaf, two shots regular) latte with whip.”

If you’re new to the coffee game it can be difficult to know where to start.  So when it’s your turn to order you ask for a “medium cup of coffee”.  Maybe you haven’t figured out what you like or maybe you froze and buckled under the pressure thinking everyone was staring at the coffee “Rookie”.  So what does the barista give you?  Exactly what you ordered.  A plain cup of coffee.  McDonald’s, Dunkin Donuts, and the Keurig in the lobby of your building will give you the same thing.

How do you like it?  It’s nothing special.  A bit bland.  Plain.  Doesn’t really fit your unique tastes.  You think it could be much better, but you just don’t know where to start. Or maybe you lack the motivation to venture out into the unknown world of coffee looking for a better drink that fits you.

Can you see the money lesson in your coffee?

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Learning to Invest Like a Doctor

I’ve had the pleasure of working with many different clients over the years, but some of the most interesting from a planning perspective have been physicians.  After spending considerable time working with doctors at various stages in their medical careers, I have noticed some interesting similarities in their educational process and the ideal learning process of investors.

If we could learn to invest like our doctors learn to practice medicine, then I believe we could prevent an enormous amount of investor pain while giving ourselves a much better chance to achieve our investment objectives.

See if you notice the similarities

Medical School

  1. Year One (M-1):  “How It Works”  Students are immersed in the process by first learning what makes up the human body and how it functions.
  2. Year Two (M-2):  “What Could Go Wrong”  After learning how the body works, this year is about learning what can cause the body to not work or function properly.
  3. Year Three (M-3):  “How To Fix It”  At this point students will begin clinical rotations which is the hands-on approach to diagnosing and fixing medical problems.
  4. Year Four (M-4):  “Specialize”  In their final year students will consider what areas of medicine they enjoy, to what areas they feel called, and how they can best use their personality and skill set to serve the patients.

Investor School

  1. Step One:  “How It Works”  Investors should focus on understanding the basic types of accounts, how they’re taxed, and the different types of investments that go inside those accounts.
  2. Step Two:  “What Could Go Wrong”  At this stage, investors should be learning the components of different investment strategies while clearly understanding the pros, cons, and risks involved.
  3. Step Three:  “How To Fix It”  By now, investors are becoming more experienced.  They have learned from their past mistakes and are now making better financial decisions.  Like Buy Low, Sell High even when everyone else is doing the opposite.  Or owning some of every asset class even when a popular few are knocking it out of the ballpark.
  4. Step Four:  “Specialize”  A mature investor understands his/her personality and can now take full advantage of their strengths because they have learned how to control any emotional weaknesses.

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Practice Financial Hygiene

When is the last time you told yourself, “I need to go to the dentist”?  Probably never.  But what are you usually thinking when you leave the dentist?  “I feel much better” or “I wish I would have done this a long time ago” or even “I need to do this more often”.  Dental Inertia tells us that our teeth will be just fine with a twice-a-day brush and the occasional floss.  We don’t know what we were missing until we’re on the other side, and there are really only 2 ways that you’ll find out what you were missing.  1 – Go see the dentist.  2 – Your teeth will eventually start falling out.

Don’t let your financial teeth fall out.  Learn how to manage your money.  Practice these simple financial hygiene tips:

  1. Stay connected
  2. Develop a simple debt plan
  3. Save 8-15% of your income
  4. Set realistic investment expectations

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