The Transformed Investor


My partner noticed that some turbulence on a recent flight was stressing me out (it was). Even though I know the odds of this actually leading to a crash are pretty close to zero, it still makes me uncomfortable every time. So, he said “just think of it as waves in the ocean that you can’t see.” I supposed Eddie, who flies often for work, is a transformed flyer. He’s always relaxed on a plane, and only gets upset if the turbulence causes his coffee to spill.  It reminded me of my friend and client, Dave, who refers to himself as a transformed investor.

Dave’s Secret

Trust, trust, trust. The first part of Dave’s transformation came from a simple book, called The Investment Answer. It offered him a new perspective about where returns come from over the long run, and why stock prices fluctuate so much along the way.  The second part came from hiring a financial advisor who acts as a fiduciary – someone who would was legally required to put his interests first.  Dave stopped looking over his shoulder for the next great investment idea. He now trusts the capital markets just enough to stop clicking on the fear-inducing headlines, and he trusts his advisor enough to stop chasing new opportunities. In short, the whole investment experience just got a little more, well, boring.

The Signs

Dave refers to himself as a transformed investor and has shared that it’s not about having enough wealth to achieve a goal. For him, it’s about relaxing more today. But how do we know whether or not he’s just talking the talk.  Here’s a few things he’s doing that has me convinced he’s also walking the walk.

Saving No Matter What

Every time Dave has surplus cash in the bank, he moves it to his portfolio, regardless of how the markets have performed in the past few weeks or months. He’s trying to save his way to a nest egg goal and isn’t relying entirely on the stock market to get him there. I’d argue he’s only half relying on returns to help him achieve his goal.

For example, if Dave was starting with $500,000 and felt he needed his nest egg to reach $3M within 20 years, being an “aggressive saver” (versus not saving at all) could cut the rate of return he needs to get to his goal by almost half. If he saves $50,000 per year, he only needs a 5% annualized return, but he’d need a whopping 9.4% if he didn’t add another dollar to the portfolio. If he ended up getting stellar returns in that period, that “tailwind” would help him to reach his financial independence goal much sooner.

Time Allotment to Discussing Investments

By my estimations, we have spent less than 10% of our time together talking about his portfolio’s contents or performance. He asked several questions up front to understand the process that’s used, and now we only talk about the portfolio if there’s a change in his life or with his goals.  This gives us more time to focus on what’s in our control – his savings strategy, planning for kids’ education, ensuring he has the right types of insurance, etc.

Yawning Through Market Drops

When the markets have big drops, I don’t call him, and he doesn’t call me. We’ve already discussed his goals and the time horizon he has to meet them, as well as the volatility he’ll experience along the way. Transformed investors like Dave get more concerned if they are contacted by an advisor after a significant short-term loss. Dave might think I need a little coaching myself if I phoned him because he had negative returns for 2 quarters.

Through the rest of my flight, I was able to think of the wind as ocean waves. And that did help a little, but I still tensed up at the next bout of turbulence. So now, I think I’ll keep an eye on the flight attendants’ faces. If they don’t look worried, why should I be? Remember that financial advisors have investment portfolios and goals as well. If they aren’t worried, you probably don’t need to be. Just like turbulence, volatility is a convenience issue, not one of safety.

Happy planning,