What is Objective Investing? Part II
Defined Values to Dollar Values
Goal setting is at the core of financial planning and goals-based investing is nominally important to most advisory services. So much so that when an advisor is asked what makes them different, they all same the same thing.
The purpose of this short essay is to help you understand that value-driven goals are the centerpiece of the cash flow strategy decision. And because investment strategy is subordinate to your goals and aspirations, the next article will integrate cash flow expectations with the uncertainty of future market performance.
But as the last essay suggested, values become real when time and space are assigned to them. Here, Xenia Ioannou takes Life on Purpose a step further,
A rational mind faces facts. It measures output against goals, identifies causes, and adjusts with precision. Success is not luck or faith; it is the reward of sustained contact with reality. Reality rewards awareness.
In fact, sound money is trusted because it transcends time and space and measures output against goals. And for the objective investor, reality is a range of spending goals, savings habits, retirement age, legacy desires, and investment risk. Each of these start with the Ideal goals for spending as much as possible, saving as little as possible, retiring as soon as possible, with the largest possible estate and the least amount of risk.
Notice this is not the highest return with the least risk. But more importantly, the Acceptable levels for each of these are not the least possible with the most risk. As David Loeper explains in Examining the Premises of Financial Advising,
That would be a contradiction . . . we are merely asking them if it were necessary to spend a little less (save a little more, delay a goal for a while), would they be satisfied if such changes were necessary to achieve another goal they valued more.
This is where the technical aspects of probability analysis begin. A skilled operator will be able to manage the data entry for every variable that is relevant including market risk exposure. Other important variables are investable assets by tax status, investment fees, income taxes and life expectancy – anything that will affect dollars of future wealth. For details and a worksheet, please refer to the Timing of Cash Flow sub header that begins on Page 190 of The Moneyball Method.
But most important is the last sentence of Loeper’s statement. To choose important values over lesser values is not sacrifice. To sacrifice is to give up a greater value for a lesser one and objective investors sacrifice nothing. We make value judgments that avoid lifestyle sacrifice and pointless risk. To learn more, please click the link below:
https://www.amazon.com/Moneyball-Method-Middle-Class-Manifesto-Objective/dp/1696009111/