Basis of Strategy: Part 1
Welcome to Part 1 of a new content push we’re making; Basis of Strategy.
Frankly, our whole blog reflects the basis for how we make recommendations and deploy strategy on behalf of clients, ourselves, and our families. Admittedly, however, it’s a bit of a hodgepodge at this point and not everyone has the time or desire to read every blog we’ve written to find out what we actually believe.
Thus, each Friday for the next handful of weeks we’ll be sharing a distilled, easy-to-digest piece of our foundational views on building wealth and financial security. The aim is simple: when someone says “what do you stand for?” (or “what does your advisor stand for?”) we can say “this” and hand them these Basis of Strategy musings.
Here is what you can expect:
Part 1: Intent Drives Strategy
Part 2: Diversification and Humility
Part 3: Global Focus
Part 4: Mitigating Costs
Part 5: More Activity = Worse Outcomes
Part 6: Tax Optimization and Arbitrage
Part 7: Managing Our Primitive Brains
Part 8: Implementation
Let’s get into it.
Part 1: Intent Drives Strategy
Picture this, a client walks into my office and says “I have $100,000 to my name and I want to buy a $250,000 Lamborghini with these funds in two years. Make it happen.”
Once I’ve purged the look of disappointment and judgey-ness from my face (because no one should be spending their entire portfolio balance on a depreciating asset like this), I would ask a few different questions, like:
What happens if two years passes and we don’t have the funds necessary for this?
Are you open to buying a different car?
Could you possibly wait 3, 4, 5 years, etc?
My hope would be that something as frivolous as a Lambo would be a flexible financial goal. After all, we’re not talking about putting food on the table, paying for doctors’ visits for your kids, or keeping a roof over your head. They should say things like “it’s okay if we don’t get there, I can buy a Toyota” or “I can wait 5 years” or something that.
The more flexible the goal, the more aggressive you can be.
Similarly, the more inflexible the goal, the less aggressive you can be. Inflexible goals are things like food, shelter, healthcare, education, safety, time with your loved ones, etc.
As advisors, I don’t lose sleep if the overall market conditions have eroded the ability for someone to buy a luxury automobile, but I’ll be staring at the ceiling at 3am if a client has to work for 5 more years to be able to retire and spend more time with their grandchildren.
Thus, the foundations of strategy are the intentions we have for our money. (Some people call these “goals”.)
Common goals are things like:
Retire
Pay for children’s education
Buy a home
Live comfortably for the rest of our lives
Not be a financial or care burden on our families
The above items are, more or less, needs. Meaning we have to have them and can’t be going to the casino with our capital we have available to pursue these goals.
(Everything is relative. We can go to the casino with our Lamborghini money, but maybe not our Toyota Camry money.)
The bottom line is this:
If you want to know how to invest, be sure to write down everything you’re investing for. Once you have things written down, rank them in order of importance. Then establish a timeline for each objective and determine how flexible you are on each item.
This list, in aggregate, will produce an overall amount of growth and safety you need, flexibility you can endure, and the time available to pursue it. Know this before you choose your investment strategy.
That’s all for this week. Next up: Diversification.
Adam Harding
Founding Advisor | CFP | Soon-to-be-dad-of-three
www.hardingwealth.com
