Does Your Investment Portfolio Have a Job Description?
I recently returned from a conference in a city where one is surrounded by money at every turn…Las Vegas. While the flashing neon lights, slot machines, and blackjack tables aren’t really my cup of tea, it served as a stark reminder of my belief that money is simply a tool, a means to an end, but not the end itself. That same thought about money in general carries forward to investment portfolios. An investing portfolio is also a tool, after all; we’re not just accumulating investments to accumulate, there’s a purpose, right? What is that purpose? That’s why writing a job description for your investment portfolio is important. Below are three steps to write your investment portfolio’s job description:
1. Be Intentional When Creating the “Job Description”
Imagine building a house without a blueprint or embarking on a cross-country road trip without a map. It’s an unsettling thought, isn’t it? In many ways, approaching your investment portfolio without a clear job description for them is akin to setting sail without a destination. Every new client that comes to us, we take through our four-step financial planning process. We believe that an investment plan should be dictated by the financial plan, not the other way around. That’s why it is imperative to take time to create a financial plan.
Your financial plan serves as the blueprint for your future, outlining your goals, needs, and aspirations. It helps you define the purpose of your investments. Are you saving for retirement, funding your child’s education, or planning for a dream vacation? Each of these goals requires a different approach within your investment portfolio.
By being intentional and methodical in creating your portfolio’s job description within the context of your broader financial plan, you ensure that your investments serve as a purposeful means to your desired financial future.
2. Begin with the End in Mind
Stephen Covey’s great book, “7 Habits of Highly Effective People,” while not groundbreaking in its discoveries, provides a lot of great advice. One of his seven habits is to begin with the end in mind. We dedicate one whole meeting in our initial financial planning process to envisioning your future and it starts with a tool called “Visualize Your Future.” This is where you spend time creating your ideal vision of the future. This will guide us in determining how much income you need so we can consider the different investment buckets that need to be filled. For example, perhaps you will need monthly distributions from your investments to supplement any social security or pension income. We may then assign a portion of your investments the “job description” of providing income and design that portion of the portfolio accordingly. Your investment portfolio should be designed to support these dreams and provide the income necessary to make them a reality.
3. Measure Its Performance
This section’s heading may sound contradictory to previous posts I have written, in which I encourage people not to focus solely on their investment return. That’s why this job description is so important. Your investment portfolio is not just about numbers and returns; it’s about the life you want to live and the goals you want to achieve. When we work with clients to create the ideal vision of their future, no one has ever created a vision that includes a section about “beating the market.” Pretty much all of them have some component about spending time with family, pursuing hobbies, traveling, volunteering, etc. Once you create the job description, you have something more appropriate by which to measure your investment’s performance: Is it providing the future I envisioned for myself?
If I gave you two portfolio options, one said you would beat the market by 2% every year but run out of money by 85 and another that said you would “underperform” the market by 2% but be able to accomplish everything in your ideal future, which would you choose? Well, it might sound obvious when I write it out this way, but often people get focused on only measuring one component of their “performance” number which leads to mismatched expectations.
Crafting a job description for your investment portfolio helps ensure that it aligns with your unique aspirations. Remember, money is a tool, and your portfolio should be a means to an end, not the end itself. Measure its performance not solely by financial returns but whether it is fulfilling all duties of its job description.
If you would like help crafting your investment portfolio’s job description, we would be happy to help.
Schedule an introductory phone call with Mark at this link: Mark Brinser – Introductory Phone Call
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