What's the Biggest Determinant of Financial Success?

Just today, I read an article in the Wall Street Journal that reminded me of our speaker at last week’s lunch and learn, Dr. Howard. Today’s article is called“A Better Way to Think about Portfolio Rebalancing,by Meir Statman.

Mr. Statman says “risk isn’t about volatility; it’s about not satisfying wants.” What could be more risky, says Mr. Statman, than a money market (or similar “low risk” investment) when you cannot provide enough money to satisfy your wants, needs or goals? Mr. Statman divides it into “not wanting to be poor” and “wanting to be rich.”

The money you need to provide your income, to take care of emergencies, to use in the short term: this money should be safe. This is the “not wanting to be poor” money.

I hazard a guess Dr. Howard and Mr. Statman would both invest the rest of the money largely in equities.

Statman’s story lines up with the way we do financial planning here at A & I Financial Services. Dr. Howard illustrates what we believe in using three bar charts. Here is Dr. Howard’s three-part plan for financial success in retirement:

  1. Planning
  2. Investment Management
  3. Behavior

Determinants of Real life Financial Success

Dr. Howard's chart shows it best: investor behavior by far dominates the real-life returns over long periods of time. At our firm, we help you put together a plan, we make prudent investment decisions putting your interests ahead of our own, and then we help you and all of us behave wisely when things change around us, taking appropriate action and avoiding mistakes.

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