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Wealth Management: Finding purpose and identifying what is important

🕐 3 min read

The most important, and often overlooked element of wealth management, pertains to “the purpose” of the money and identifying “what is most important” to each individual. Many investors focus solely on performance and risk tolerance and fail to recognize a more effective and powerful strategy. Specifically, a good financial advisor can help each client identify what is at the heart of their efforts to save, enhance and protect their lifetime savings. This exercise, when executed effectively, can help erase the ever-prevalent investment pornography and misinformation that clouds judgment and leads to an anxiety-filled, poor investment experience. Simply put, it matches the investor’s values with the investments with the least amount of risk.

The first step of this exercise involves a “discovery process.” Here the investor identifies key elements that help determine what the investments should look like and how they behave. It is vital that each client identify “what is most important” to them about money. This reveals their primary motivation that shapes how they feel and their attitude toward money and risk. An easier question to ask, “What is it REALLY for?” When the focus becomes “what is most important” and “the purpose” has been identified then the investment policy becomes crystal clear!

With assets and liabilities, and the overriding purpose for the money identified, then other pieces of the investment plan begin to fall into place. Interestingly, the old questions we used to ask have become irrelevant. Questions such as “What is your risk tolerance?”, or “How much do you think it’s possible to earn in the markets?” or “Would you like to be balanced or more stock heavy?” have lost significance missing the point entirely. The discussion should be quite different and the old questions have become relics of a bygone era (I asked these questions as little as 15 years ago). While these questions still have some relevance, it is far more effective to apply mathematics and elements of Modern Portfolio Theory to an individual’s value system to find the best, most suitable portfolio. In applying this simple strategy the uncertainty begins to wane. When “what is most important” and “the purpose” have been identified, we now have our goal! Another critical aspect of wealth management comes next: find the least risk for the money to achieve “what is most important.” Never again do we worry about risk tolerance, beta neutrality, absolute returns or stock picking to try and maximize returns just to beat the market with no real underlying reason. This is not to say returns and/or investment strategies aren’t important, they are, but now a real target is in focus and a strategy can be formulated to that end with the least possible risk.

If however, a portfolio with the least risk is shown to achieve a person’s goals but it is too risky for the person, then the discussion becomes easy…that person needs to save more or spend less. What if it was the opposite; a portfolio to achieve a person’s goal was viewed as too conservative by the person? I was once told by a client “but I have always been 80% stock and 20% fixed income and that’s what I like” to which I replied “Why? You’ve done enough and we can achieve every element of “what is most important” to you with 40% stock.” It becomes liberating when you match a purpose, goals and values with the least amount of risk to attain them. Whether there are disruptions in the markets or over-exuberance abounds, this focus helps to keep investors grounded and on an unwavering path. Investors now have the ability, in good times and bad, to remember what it’s all for, and not be deterred by outside influence and factors. The path has been set to achieve “what is most important” with the least amount of risk ultimately giving one the highest probability and greatest chance for real success!

Craig C. Rogers is president and COO of Rogers Wealth Group. Inc. www.rogerswealth.com  

Robert Francis
Robert is a Fort Worth native and longtime editor of the Fort Worth Business Press. He is a former president of the local Society of Professional Journalists and was a freelancer for a variety of newspapers, weeklies and magazines, including American Way, BrandWeek and InformatonWeek. A graduate of TCU, Robert has held a variety of writing and editing positions at publications such as the Grand Prairie Daily News and InfoWorld. He is also a musician and playwright.

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