Aspirational Investing: How To Step Into The Investment Process With A Helper

by: John Lohr


What are investors actually investing for?

An investment is just a vehicle.

"Home runs" have nothing to do with investor goals.

There has been a lot of discussion on this site about whether advisors added any value to investors. (For my perspective, see my article here in SA: "How do you quantify the value of advice"). The general investor consensus is, "We don't want to pay 1% (or whatever) to lose money." The "do it yourselfers" believe they can replicate or beat an advisor's performance without an advisor's fee. Advisors and their advocates and some sage contributors responded with, "It shouldn't be about performance." And on it went. Comments were lively, well thought out (most of them), sincere and. well, repetitive. Still, enlightening.

Then out of the blue, our guru, Gil Weinreich, wrote about the importance of financial planning with a comment that it may be a very important or the most important piece of an advisor's repertoire. I couldn't agree more. Most investors spend less time on financial planning than they do on vacation planning.

If you consider investing as a process, then your endgame should be goals-based, not short-term-performance-based. That thought probably doesn't resonate well with a lot of our subscribers, but stay with me here.

What are you actually investing for?

Retirement? Some of you are already there. Some of you will never retire.

Kids' college? Been there, done that.

Grandkids' college or whatever?

Leave a bundle to your kids? I invested my parents' inheritance on 2 Green Arrow comic books and a stick of gum - 21 cents. I wish I still had the comic books, though, I do have the gum.

A charitable gift?

Or, are you just bored and DIY investing is the adult version of gaming?

I decided to take the question of financial planning and investing to a real expert. Len Reinhart and I were colleagues at EF Hutton's Consulting Group 30 years ago. He developed investor products which defined the investment management landscape, like Select, Fiduciary Services TRAK; he founded Lockwood. Recently he took over Wealthcare Capital Management, where he is the Chairman. He's the ultimate investment management innovator.

So, I asked Reinhart about how advisor-assisted investing will change. Back in the day we used risk-based investing as THE methodology. A quick questionnaire around how much risk an investor wanted to take (CYA mostly) and we were off. There are still, 30 years later, a lot of advisors and their firms that follow this approach. These questionnaires are painful.

Reinhart points out that there are gazillions of investment solutions out there, so the importance of the actual underlying strategy becomes just a vehicle. The 30-year-old method of measuring your results against some index or a custom benchmark has nothing to do with your goals.

Just a vehicle which we -- advisors and investors -- get caught up in-mostly to our mutual detriment.

Financial planning once translated into a 60-page living will and some insurance products. That's why it has a bad image today. But, a handful of seed changers like Reinhart and Wealthcare among others are trying to redirect investors from looking at investing, probability, risk and performance to looking at "aspirational investing."

What, just what do you want to do? That's the question to ask. It doesn't come packaged in a 10-question risk questionnaire any more than it does in a 60-page living will.

The marriage of today's investing industry tools and technology will allow advisors to develop a process to give clients what they really want, no matter what it is (within reason, of course: we're not talking Powerball tickets here). That process builds on the client's goals, desires, objectives and aspirations.

Investing is just a vehicle to get wherever it is you want to get to. Len contends, and I concur, that most investors do not care what the investment may be. We believe that the importance of the investment was something that was sold to clients way back. It probably still is in some places. Hitting a "home run" has nothing to do with your goals. It just gives you temporary bragging rights.

What is really needed today, more than ever, is life-based financial planning. Another colleague, Dave Loeper, said today's financial confidant should learn to "orchestrate the music of their clients' lives."

That's planning.

It's the most important step in the investing process.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Some thoughts from Len Reinhart was compiled from an interview on September 12, 2016