I have now been a financial advisor for over 20 years. This is fascinating to me, as many people these days don’t remain in a career for 5 years, much less 22. I absolutely love what I do and have a passion for helping people and grappling with markets on a daily basis.
As I get older and begin to apply all the variables I’ve helped people with my entire working life, I’ve started to think of the most important facets of successful financial planning and thought I would relay some general thoughts.
Eliminate Debt – Despite the mathematics that often will show a much higher return in markets over a car loan or mortgage payment, I can’t even begin to articulate how important it is for folks to make debt reduction a priority far before their retirement years. The reason stems from psychology and how I’ve seen first-hand the difference in emotional response when the markets are falling from those who have debt to those who have none. In recent years, market participants have become spoiled with market declines reversing to new highs in a matter of weeks. Folks who’ve been around the block a time or two know just how abnormal this is. Unfortunately, there will be times when markets do not produce returns far in excess of debt instruments and it becomes much harder to justify holding stocks as they’re in decline while at the same time using any income you have to make a mortgage payment. Rather than view declines as opportunities, I have seen people ultimately make the terrible decision to sell investments at the bottom just to eliminate the debt for a psychological relief that ‘at least we have the house paid off.’ I tell the story often that in the midst of the pandemic during 2020, there were only a small handful of folks who actually added money to the markets out of the 600 or so families we work with. I was one of those people, and the commonality among us all during that time, you guessed it, no debt. Many folks who enter my office are so fixated on the markets, allocations, investments, risk and the like when they should first be focused on paying off debt and cleaning up their own balance sheet. This has been the #1 difference maker among folks I’ve seen over 20 years by far.
Time in the market, not timing the market – When I first started in the business, I would have considered myself a stock jock. I was enthralled with the individual names, the daily ticks, the movement of markets and all the gyrations that came along with it. As I look back on our evolution in business and my personal development as an advisor, I’ve become much more boring and, in my own humble opinion, much more successful with my investment strategy as I’ve adopted the critical rule above. You see, the greatest thing about passive index investing is that over time the cream will rise to the top and good companies will take a more predominant role in the markets while poor companies will be removed and replaced. Were you aware that Tesla has been in the S&P 500 for over two years now? Basically, you don’t need to know a thing about the EV market and yet by owning the S&P 500, you’ve been investing in and participating in the success of one of the fastest growing companies in history. In addition to the constant rotation of companies, passive investing allows for dividends to reinvest and advance capital even if the stock prices themselves are not making much headway. Now don’t get me wrong, we’ll still trim excess here and there as we’ve done lately, as well as move into different areas where we see opportunity, however the idea that the market is ‘too high’ and therefore not investment worthy is a critical misstep. I like to share with people that despite our belief in the economic or political landscape, companies will still be making money and therefore businesses will continue to grow. I’d rather participate in their growth than sit on the sidelines angry. Some of the best investments I’ve seen over the years are boring, stodgy and take great patience. To reiterate, it takes lots of time and many market cycles to make significant returns; however, make no mistake that over a long period of time, publicly traded stocks have outpaced every asset class under the sun, yes, even Real Estate.
Wise Counsel – I know you think I’m talking my own book here but truly I am not. What I am referring to here is the idea that any life goal, be it financial or otherwise, be bounced off wise individuals who specialize or have a gift in a certain area or another. This idea spans far beyond financial, however I’ll stay in my lane and stick with this example for now. We have two types of clients. Client A invites us into the discussion regarding financial decisions before they’re made. While I may be their primary financial advisor, I am often one of many who give them feedback. This person discusses with folks all their options, weighs the pros and cons and makes unemotional, calculated decisions. Client B makes a financial decision and then tells us about it later. Which one do you think has a better success rate? You guessed it, Client A. Often outside counsel can take a look at areas that you may be missing or at least offer guidance in an unemotional objective manner. This will always help in the decision making process and give a person peace of mind to know they’ve at least weighed all their options.
Early in my career, I knew to surround myself with wise individuals who could help guide me along the way. You may not know this about me, but for over 10 years I was part of a men’s group that met weekly to discuss all areas of life, including business. I attribute much of the success of my marriage to this group. Once that group ended around 2010, I began meeting with a gentleman once per week. We spend time in the bible as well as discussing all areas of life, including business . While I act as a financial advisor to hundreds, Daniel, In our office, is my financial advisor and helps to make sure I am thinking of all areas in my life. One of the most successful entrepreneurs I have ever come across is a client of mine and has become a personal business advisor as well. We also meet regularly to discuss business ideas, challenges and the like . I can’t imagine thinking I knew it all or making decisions solo and hoping they worked out. Wise counsel is definitely in my top 5 of financial success traits common among the most uncommon.
Patience – You may think this goes along with ‘time in the market’ but I believe patience requires its own category. When my wife and I were first married we bought a shotgun home off Tates Creek Road in Lexington for less than $60k. Many of our friends were buying brand new homes or building their own. We drove 15-year old automobiles and rarely ate out. Our priority was to pay off the debt we had accumulated during college. We both had auto loans, credit cards, a student loan and now a mortgage. We knew that the sooner we paid off debt the quicker we’d be able to do the things we really wanted to do, such as have Brandie stay home with the kids, enjoy travel, save for retirement, etc.
As I write this now, I couldn’t be more proud of the disciplined decisions we made, however at that time I can vividly recall just how hard that was. I don’t care who you are, it is hard to remain content when everyone around you is buying shiny new things. We would have folks over and it was slightly embarrassing that our kitchen served as our living room, our main entry and our dining room as well. Many of those friends who came over and loved us despite our meager surroundings are still great friends today. In fact, I can even remember hosting a dinner party for clients where we moved in a long table which basically took up our entire first floor. That dinner was exceptional and while a couple of those folks have passed on, one couple are still clients to this day and I’m guessing are reading this right now. I can still hear the gentleman’s loud laugh echoing off our bare walls as we enjoyed a wonderful meal.
It wasn’t easy to do what we did; however, we knew it was the right way to secure our future so we patiently waited for the ‘stuff’ we really wanted. Ironically ‘stuff’ has little meaning now but we managed to pay off all debt, Brandie hasn’t worked as a PT since we had Joshua over 14 years ago and while our lifestyle is still far from lavish, we love to travel and enjoy our beautiful country as a family.
The lack of patience by people today as they buy houses they cannot afford, stretch to spend money they do not have, or keep up with all the people who seem to be ‘crushing it’ is very concerning. I fear that many of these people will have a rude awakening soon, that this very same lack of patience is precisely why they never gain ground with their financial future.
I know this example is overused but to share a personal story, in the last year I ran both a 34-mile ultra marathon and the New York City marathon. How in the world did I finish those? You guessed it, one step at a time.
Risk / Fear / Education – I used to hate to fly. The idea that a multi-ton metal tube can soar through the air at 40,000 feet going 600 mph while I sip coffee and surf the internet is mind blowing to me. Any time we had turbulence I could swear we were going down and my life was over. Finally, one day I thought that maybe my fear was irrational and needed to be investigated further. I dove deep into the mechanics of plane manufacturing along with the statistics surrounding plane accidents. I watched a video of how they test the planes for durability, basically bending the wings nearly 90 degrees to ensure they’re secure. Furthermore, I learned I’m far more likely to have an automobile accident than a plane crash and voila, my fear of flying dissipated considerably. This is good considering I fly monthly to see folks all over the country.
The same can be said for markets and financial investments. The most successful investors I’ve seen are the ones that understand the game. Unfortunately, many educated individuals merely read headlines and stop their education there. This is sad, as they then get caught up in challenges that hinder them from investing at all.
If you find yourself extremely fearful of the markets and stuck on the sidelines due to this, I strongly encourage you to take steps to educate yourself and draw your own conclusions once this education has been completed. I recommend two books to get you started. The first is an in depth look at how stocks appreciate in value over time and understanding that investing is not a game but rather a way to participate in companies working on your behalf. Written by Mary Buffett, the daughter of famed investor Warren Buffett, Buffetology takes a deep look into valuation and understanding the basics of investing. It is a bit more in depth than a basic book but I believe it will help to break through some of the fear-based reasons people don’t invest.
The second is a common classic – The Little Book of Common Sense Investing by Vanguard founder John Bogle. This takes a deep dive into the world of index funds and passive investing, something we’re big fans of at Joule. Bogle is a legend and is a reason we use quite a few of the Vanguard funds for our investment strategies. This is a more rudimentary book that allows you to gain a better understanding of broad investing. It is not as technical as Buffetology but still highly regarded and will be quite helpful in your educational pursuit.
I will often spend as much time as needed with a person for them to understand what it is we do and how we do it. My goal has always been to pursue a commonsense approach and never have a client walking away thinking ‘well I’m not sure what we’re doing.’ Unfortunately, I’ve seen countless people pursue this path which is fine until the turbulence sets in and they become angry that they didn’t know more. It would be like me trying to research safety features or plane construction in the midst of the flight while turbulence shakes the plane and concern is in the air. By that time, it’s too late.
Begin to educate yourself and absorb knowledge that is already out there. I always enjoy working with folks who share the same passion of education about the markets that I do and I find it brings a new level of respect for the business at hand.
While I am sure there are more key factors like the ones I’ve listed above and the minute I conclude I’ll think of others, but these are by far the most critical areas I’ve seen over the last 20 years when it comes to financial success among our clients. Whether you’re just getting started or well on your way, maybe you can hone in on one or two to tighten up your game just a bit before we enter any new turbulence in 2022.