Last weekend, I came down to the living room to join my wife, who had already started watching The Proposal. Having joined about an hour into the movie, I naturally had some questions.
Why is Sandra Bullock joining Ryan Reynolds’ family in Alaska?
Why are they faking being engaged?
What’s the beef between Ryan Reynolds and his dad?
Obviously, my wife was thrilled.
Context is important. As rom-coms always allude to, people do crazy things when they’re in love. And while flying to Alaska to fake an engagement to your assistant in front of his family in order to avoid deportation back to Canada might not be the optimal solution, context at least makes the decision understandable.
In wealth management, your financial plan provides context, and this context is the guiding principle upon which all subsequent decisions should be made. Context is critical because financial planning is often less about absolutes and more about trade-offs between competing pros and cons.
Let’s use investments, for example. How exactly should someone invest? Should you put all of your money in stocks, or maybe the traditional 60/40 portfolio? Should you consider investing in private markets? What about the investments that financial news is fixated on, like cryptocurrency or NVIDIA? The answer is going to depend on several factors related to the client because none of these strategies is always the right answer.
In the context of financial planning, investments are not the solution but simply a tool to get your savings to an amount able to cover your future goals. All else equal, if you have less currently saved and the stomach to tolerate it, you may want to be more aggressively invested to increase your odds of success. However, if you’ve saved plenty relative to your future goals, you have the option to invest more conservatively to still reach your goals while accepting less risk along the way.
This may be a new way for some to think about investments as it’s easy to automatically seek the highest returns possible. However, higher returns for the sake of higher returns may not be ideal in every situation. At the end of the day, people want to live their dream life, whether that means retiring by the ocean, spending each anniversary in Paris, or simply being able to attend the grandchildren’s little league games. Outperforming the S&P 500 in isolation does you no good if you still cannot afford your aspirations, whereas underperforming the S&P 500 while never running out of money would likely be viewed as a successful outcome. Once you factor in the stress some investors feel by watching the roller coaster of volatility in an all-stock portfolio, seeking less-than-maximum returns begins to make a little more sense for those who can afford it, even if lower returns would never make sense in a vacuum.
Of course, investing only scratches the surface of a person’s financial situation. The ability to change savings habits, retirement contributions, income taxes, and other items all play a role in crafting personalized solutions for a given situation. At Regent Peak, we believe a deep understanding of our clients’ complete financial lives provides context that brings newfound clarity to financial decisions. Let’s start a conversation today.
Disclaimer: This is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.