Family excursions to educate and expand horizons are some of our proudest accomplishments
Earlier this month my wife Jennifer and I celebrated our fifteenth wedding anniversary away from snowstorms and icy roads in the warm climate of Central America. Whenever I am traveling, I usually set aside time to read, review goals, look at progress on projects and the like. It seems I finish more books in airports and on planes than when at home. On this particular flight, I re-read a book on enjoying the journey (See Playing to Win by Changing the Rules) and being grateful for how far we have come over time. This I feel is much more-healthy than focusing on things we have not achieved yet or comparing to others and the book inspired me to write down the Top Ten Things I was most proud of accomplishing in 2017 and what next steps we needed to take to build on these successes.
What struck me when doing this was that the items I was most proud of did not include all-time records in revenues and profitability for the business or growing our net worth beyond previous highs. I’m much more inspired by developing deeper relationships and helping clients and staff members achieve their goals, growing over time and achieving things they never thought possible.
But my top items all revolved around time spent with the family, helping our kids grow spiritually and emotionally and creating great experiences for everyone to cherish over a lifetime. These are the things I most want to improve upon and maximize, deepening relationships and inspiring and empowering everyone to be all they can be.
We want to expound upon fun, adventurous and educational getaways like we had as a family at the Grand Canyon, the Balloon Festival and the many national parks we visited out West this Fall. We want to expound upon the romantic getaways we have as a couple. We also want to find more ways to help our kids and staff members find and develop their passions and talents and help them grow more productive and confident.
We’re working to find better ways to help clients define and achieve their goals, building upon our strengths, continually creating a more enjoyable experience. As-long-as we focus on top quality wealth advice, strong planning, improved technology and deeper relationships I think we will be on the right path. The markets are fickle, styles go in and out of favor and sometimes it isn’t sexy to be diversified and have some parts of the portfolio lagging, so our focus should be on those things we can better control. We feel it’s the relationships, the time-tested wealth advice and the delivery that matters.
In 2016 & 2017 diversified portfolios have fared better vs. “The Market” (S&P 500) than in 2015
In October while attending a conference in Nashville I was struck by one presentation about what type of clients we best serve. We have found that our true value as wealth advisors increases as financial complexity increases. After a certain period of time a client graduates from fears or concerns revolving around having enough to retire or be financially independent and we’re no longer in the business of just helping to create financial security.
At this point we add much more value in creating security for the financial structure of the client’s life. In our WealthFitTM process we move beyond just the investment and accumulation portion to all the other areas of financial planning and embrace tax planning, wealth transfer strategies, optimal liquidation strategies, cash flow planning, additional protection planning (legal/tax etc…) and document / technology management. Developing WealthFitTM into a process for continued improvement and review over time allows our Wealth plan to stay in good condition and help avoid getting blindsided or out of shape financially.
We add the most value by simplifying client’s lives and helping to identify financial “blind spots”.
It won’t be long until we have another bad year in the markets. One or two bad years does not derail a well-crafted plan or process as-long-as clients are well educated, take time to stay in condition, review the plan over time and do not intentionally or unintentionally get off track.
TEN THINGS TO WATCH FOR IN 2018
- Your results in 2017 will impact how you feel about the markets in 2018. The recency bias affects us all in some way. Some investors will be overconfident based on solid 2017 performance. Others will be gun shy after missing out on big gains. Still others will be waiting for a reversal of fortune. We tend to use our recent experience as a baseline for what will occur in the future, often to our own detriment.
- Something will happen that doesn’t make any sense at all. There’s sure to be something that catches investors off-guard in 2018. Something is bound to defy expectations whether it involves geopolitics, irrational market movements, corporate takeovers, huge gainers, huge losers, or any number of crazy news, events, or performance. I’ve learned I’ll almost always be surprised by markets to some degree so the trick is to not be surprised that you’re surprised because these things can be extremely random.
- When stocks start to fall a little, it will be easy to convince yourself that they’ll fall much further. The average peak-to-trough drawdown in stocks over the past 70 years or so is a loss of 13-14% in a given calendar year. We saw nothing close to approaching this type of drawdown in 2017 but eventually, we’ll see a correction. Crashes are rare in comparison to corrections but it’s almost impossible to avoid thinking every correction will turn into a crash.
- There will be other people getting richer than you through better portfolio performance. Greed can force investors into making mistakes with their money but envy is probably more destructive for investors. Seeing your peers, friends, or even perfect strangers making money faster than you can cause some strange emotions and reactions. You'll be happier when you focus on your goals and how well you are adhering to your plan.
- Your asset allocation will likely have a bigger impact on your performance than your security selection. Stock-picking is more exciting but even if you pick the very best stocks in the worst sector/country/region/risk factor it probably won’t matter in terms of your overall performance. Asset allocation isn’t as sexy as security selection but it will almost always be the most significant part of your performance attribution.
- The best investment you can make will likely be an increase in your savings rate. You have no control over market returns, tax policy, economic growth, or the actions of other investors. But you do control how much you save which is typically the most important investment decision you can make. This is boring advice but for those who are worried about the prospect for lower returns it’s the most proactive move you can make.
- There will be geeky finance debates that 99% of investors should safely ignore. Passive vs. active. Smart beta ETF construction. Value investing is dead? Portfolio optimization. How much active share is necessary? These topics make for interesting banter for market nerds like myself but most investors are better off ignoring such minor details and focusing instead on getting the big things right.
- There will be a stock, fund, strategy, or asset class that skyrockets that you wish you owned more of. Every year there’s something everyone wishes they would have put their entire portfolio in to see huge gains. It’s fun to dream about owning a lottery ticket stock but you’ll only know in hindsight what the perfect portfolio or investment would have been over any given year.
- You won’t be able to distinguish between luck and skill in anyone’s investment results. People will be right for the wrong reasons and wrong for the right reasons but markets don’t care about these things over shorter time frames. Over any given year a great process can produce subpar results while a terrible (or no) process can produce phenomenal results. Bad decisions get rewarded all the time but luck doesn’t last forever in the markets. Eventually a good decision-making process will win out but over a one-year time frame anything can happen.
- Diversification will make you feel silly. Any long-term investment strategy is bound to make you feel foolish over the short-term. This is especially true at market extremes as the limits of your patience and discipline are sure to be tested. Diversification is for patient people and that requires ignoring those market environments that make you feel like an idiot for spreading your bets and managing risk.
Joe D. Franklin, CFP is Founder and President of Franklin Wealth Management, and CEO of Innovative Advisory Partners, a registered investment advisory firm in Hixson, Tennessee. A 20+year industry veteran, he contributes guest articles for Money Magazine and authors the Franklin Backstage Pass blog. Joe has also been featured in the Wall Street Journal, Kiplinger's Magazine, USA Today and other publications.
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