Broker Check


Investments - Do You Have the Old Plan or the New One?

| July 30, 2018

“Investments.” The word itself brings on a mixed bag of emotions and descriptions. Whether it is excitement, intensity, fear, distinction, grandeur, exposure, pride… they are all a façade. How many times have you, or someone you know, bragged about recent returns or what you own, what you bought, or what you just made a pot of money on? And how many times has that same conversation been a pity party—someone didn’t do as well, lost money, or was crucified by the market or Cramer’s advice?

We have a saying in the insurance world that applies in the investment world as well: Is your policy that old policy or the new policy? And so, about your investments: Are you investing the old way or the new way? Unfortunately you could purchase an insurance policy today -  and it could  turn out to be the ‘old policy’. Likewise, an investment plan today very well may be the old plan. The old plan consisted of one, two, or three components when it comes to investing. The new plan has five.

The first component most everyone gets right is that each investment should be analyzed individually to make sure they are good investments. The problem is most individuals and even brokers stop here and put together a selection of single investments. This way of investing only works for one type of person. It only works for a person who never needs to see these dollars again. Why? It is risky business.

There is a second component that a lot of people get right and where a lot of people go wrong. Each investment should complement the other investments held by the same family—style, size, industry, politics, country, consumer, etc. This creates a word you hear all the time: diversification. Too often, people mistakenly believe diversification means having your investments spread out between the bank, insurance companies, brokers, investment advisors, and even one or two of each. NEWS BREAK: If these professionals aren’t communicating about you, this plan is creating the opposite effect. You will most likely have gaps and overlaps, which means excess and unnecessary risk. Most advisors can achieve diversification in one sense of the word or another within their toolbox. Does it mean it’s perfect? Never—especially when you stop here. It just means you have potentially downgraded your risk.

The third component is where even less get right. You may have taken the time to have an advisor put together a financial plan for you. If so, was there an investment plan that was implemented with this? After all, isn’t this why you invest your money in the first place? I assume you have financial goals you want to accomplish. If so, are both your financial plan and investment plan updated together at least on an annual basis? Very few people do this. Why? First, the technology wasn’t there to make it easy on advisors to do this in the past. And second, even with the technology available today, it is still time consuming for an advisor to do it the right way.

The fourth component is even harder to find. What is your income plan? Your income plan should help mitigate risks in your investment plan that investments alone can’t accomplish. When you get the feeling of fear or greed, how will your emotions affect your returns? Will the timing of your retirement due to a recession cause your retirement plan to fail? What process will be there to help you buy low and sell high? Your income plan is like insurance on your financial plan, but positioned with investments. Very few have it, but almost everyone needs it.

The fifth component is almost completely non-existent. We do it – but I don’t know many others across this great nation that do, outside of a family office who serves the mega-wealthy. How do you make your investment portfolio make money with zero return from the investments? Yes, there may be all that technical stuff we do with the investments themselves, but that isn’t what we are talking about. In any given year there is opportunity. It may be Tax Reform, a recession, expansion, legislation, or simply your unique situation, family dynamics, or future and goals. Who is looking at all of this holistically for you? Who is talking to your professionals on your behalf about how to optimize your timing and position of your overall wealth creation? Who knows about your Life Plan? Who knows the details such as your property and casualty coverage, other insurance, taxes, investments, banking, entities, legal structures or documents, cash flow? Who knows about your health, family, your wishes, goals, desires, the charities near and dear to you, the way you think, how to take care of things if you were suddenly gone? Who has the capacity and knowledge in the financial world to pull all of this together and make your Life’s work sing? Does a plan that saves millions of dollars in taxes for your lifetime and your children’s lifetime not deserve to be counted in your investment return? One can’t work without the other, and the plan can’t exist without this holistic capitalization.

Which investment plan do you have?  Which one do you want? Don’t waste another minute without upgrading to the new investment plan!