The value of constraints in financial planning

When a client or professional introduces me to someone as a financial planner, many people have questions about or want to discuss investing.

And while investing is an important part of comprehensive financial planning, it is still just a part.

Likewise, investing is an important part of my financial advice for women, but it’s only part of the things we work on together.

The investing landscape changes and grows every day.

Consider these statistics:

Add in bonds, convertibles, preferreds, options and other types of investments, and it quickly becomes evident that it can be quite a challenge to keep up with all your investment alternatives and choices.

Then consider that each of these investments is an ever-changing variable with no consistently successful method to determine the winners ahead of time. Despite their intentions to convince you otherwise, no one – including your financial advisor – can see the future.

But wait, there’s more . . .

There’s a virtually unlimited supply of investment choices. And most of these investments can fluctuate and change daily. It’s enough to make you wonder if it’s even worth trying to make sense of.

But there’s also the intersection of your investment choices with your life.

What investment choices will give you the highest comfort and confidence that you can achieve what’s important to you? Which will reduce as much uncertainty as possible?

For me and my small community of clients, we have deliberately imposed some investment constraints on our portfolio management process to help eliminate “analysis paralysis” and give ourselves the best chance of achieving what’s important in your life.

Instead of attempting to architect some cool-looking, multicolored pie chart of investments, I use and recommend just three total market exchange traded funds (ETFs).

Here they are:

  • Total US Stock Market ETF
  • Total non-US Stock Market ETF
  • Intermediate-term high quality bond ETF

In addition to the funds above, I also typically recommend part of your portfolio be allocated to a money market fund.

And please understand, I’m not saying the above investments are perfect for your situation, but I can say, based on my 20 years of experience, that I’ve yet to encounter a client situation where this portfolio wouldn’t have worked well.

In fact, a low cost, total market ETF portfolio offers better diversification and can be less expensive than many of the portfolios I see and review with my clients.

But the point I want to really drive home today is that having set some intentional constraints on our portfolio construction and management process, there is much, much less noise masquerading as news that I have to pay attention to. More importantly, there’s much less my clients need to pay attention to.

And MOST importantly, it allows me to spend my time with clients focused on what’s really important . . . how they’re going to use their hard-earned money to live their best life.

I think this is the best use of our time together and allows me to deliver tremendous value in exchange for the fees my clients pay.

By focusing on what’s important and what’s largely in a client’s control, it makes for much more productive discussions and decision making than if we sat around talking about what-if we moved some arbitrary portion of their portfolio to the latest investment du jour.

Yet, that’s all most investment advisors and financial planners want to talk about . . . your money. And the investment markets.

In this case, I think it’s valuable to work within reasonable constraints – limiting our investment choices, in this example – so we can spend more of our time and energy focused on making the most of your one shot at life.

Contrary to what you may have been led to believe, financial planning and investing can be simple. And while simple doesn’t always mean easy, neither does it mean ineffective.

Give me a call or send me an email, and let’s have a conversation about it.

Thanks for reading!

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