The Difference Between Managing Money and Managing Wealth

Investment advice without adherence and guard rails that automate and regiment behavior isn’t worth much.  Investment and Financial Planning that enables these good behaviors is worth far more than the price of admission.

Offering a portfolio and an understanding of the levers within your control is how financial planning separates Managing Money and Managing Wealth.  In other words..

Managing Money Managing Wealth

Asset Allocation, Forecasts, Risk Tolerance Asset Location, Expected Returns, Risk Spectrum

Managing Investments Managing Investors

Portfolio Construction Financial Plan Construction

Risk Management Emotion Management

Products Principles, Process, People

Financial Capital Human Capital

Money Experiences, Relationships, and Time

Taxes This Year Taxes Over a Lifetime

Prepares for when markets misbehave Prepares for when life happens

Manages Inflows and Outflows Choreographs Systems, Processes, and Behaviors

Where to invest a lump sum How and when to invest/divest a lump sum

 People lose their $H!t it at poorly timed emotionally triggers...collectively.  It is the behavior driven market cycle. This isn’t a function of cost, it is a function of fear and greed.  Cost effects money - behavior effects wealth much more so.

A portfolio is not, in and of itself, a plan. And a portfolio that isn’t in service to a plan is just a form of speculation; - Nick Murray

Nick is trying to say that the goal can’t be to beat the market.  No plan is built around “outperformance” of a random equity index.  Money is only part of the plan - albeit an important one. A plan involves a portfolio that is calibrated to deliver what the plan calls a reasonable range of expected outcomes over time, that understands the client’s risk capacity and risk required.  It involves dynamic calculations and assumptions to produce probabilities and knowing what levers to pull. Nick Murray continues while discussing the merit of a plan...

Back to Nick...

What it does do is demand rational, deliberate behavior on the part of the investor and his trusted advisor.

Financial planning looks at basis points but doesn’t obsess over them.   Behaviors cost more than a few basis points - sometimes even full percentage points.  Yikes!

Focusing on cost and performance and dividends rather than the holistic plan is like driving 50 miles to save 10 cents a gallon on gasoline.  Deductions, Tax Exempt Muni’s, and other behaviors are worth a lot more when they are tied to a distribution strategy in the plan.

Poor behaviors are price agnostic and are independent of your portfolio.  The plan is what matters most.