Portfolio performance may not be best check on progress

What if, the next time you visit your financial advisor, you don’t ask about your portfolio’s performance? What if instead, you ask your advisor each quarter to give you the latest odds on reaching your long-term goals?

Most experienced investors have been trained to focus on their portfolio’s quarterly and annual returns.

That’s all well and good, but making money on your investments is not an end in itself, right? The fact is regardless of a 3 percent decline in a year or a 9 percent gain in a quarter in a portfolio’s value, there’s a bigger question investors – particularly business owners, entrepreneurs and other high-net worth investors – should never lose sight of: Am I on track to achieve my goals?

We’re all out to gain some degree of financial freedom, to be able to do things that are important to us or provide financial security for others. We don’t work or invest just to amass more money. And once you’ve accumulated wealth through a career or through running your own business or selling a business, you’re going to want to start making decisions about what is important to you in the future. Some of those basic financial objectives include a certain income level after retirement or after exiting a business, leaving an inheritance, and perhaps you’ll want to have money for future charitable contributions.

Coming up with the objectives on your own or in discussions with a financial consultant may be the easy part. The problem is that between running a business or advancing a career and managing your finances, it can be too easy to take your eye off of your long-term priorities and the path to achieving those goals — and that includes your goals for the next 10 or 20 years and your vision for your legacy perhaps 100 years from now.

If you stay focused on your objectives, however, then when you meet with your financial advisor you’ll have a different conversation than you’re used to.

Typically, for example, in your initial encounters, a financial advisor will ask questions aimed at gauging your risk tolerance. Often your responses result in a classification, such as income investor, growth investor or aggressive growth investor. Then, your investment advisor will design a portfolio that ensures you suffer the maximum risk you can stand.

This focus on performance and risk tolerance means that, in subsequent visits with your advisor, you’ll be talking about returns and other aspects of the portfolio’s performance. If you beat the market, you and your advisor will pat yourselves on the back, and if you lag the market or, as in recent years, if the entire market tanks, you’ll commiserate and, perhaps, make a few adjustments and hope for the best next quarter or next year.

But, what if you stay focused on your goals and the path to achieving those goals? If your goals remain at the forefront, then you’ll still, of course, be interested in the performance of your investments. But going beyond the performance, you need to align those results with your objectives. You’ll want your financial advisor to tell you the odds of achieving your financial goals and provide resources to help you meet those goals. And, as you monitor investment returns, you’ll continually want to know if you are on track to meet your goals or if you are drifting off course. If you are off course, you’ll want your financial advisor to help you determine what adjustments to make to get back on course and increase your odds of success. If, for example, the value of your investments declines 8 percent in a year, you could just assume future returns will exceed expectations and hope you’ll recoup the losses over time. Or, by staying in touch with your long-term objectives, you could adjust your goals to increase your odds of success.

If you keep your dreams and aspirations at the forefront, you’ll always be asking your advisor the right questions: What are the odds of my investment strategy getting me to my goals? Am I still on track to realize my dreams? Do I need to adjust my goals? Do I need to adjust my investment strategy to increase the odds of achieving my objectives?

Remember investing isn’t about just making more money, it’s about helping you reach your dreams. If you keep those goals at the forefront, you can increase the odds that your financial plan will help you reach those objectives.

Christopher G. Snyder and Haitham “Hutch” E. Ashoo are principals of Pillar Financial Services in Walnut Creek. Contact them at 925-356-6780.

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