Why We Invest

November 09, 2021

The Zoom broadcast we started over a year ago was created due to an observation made to both JT and I regarding our lifestyle – which was articulated as: “you two live the good life and others would like to learn how to enjoy life as you do.” Thus began “Cocktails With Fred.”

The reality is, as we’ve pointed out on numerous occasions, to know your true purpose for money and knowing this should guide your investment decisions. In other words, what exactly is it that you wish your money (or investments) to accomplish for you? There is no right or wrong answer – we are each unique individuals with different wants and needs. So it could be to take extreme risks and if successful blow it all on a frivolous lifestyle or to be prudent to fulfill a charitable intent or anything in between – all are valid. What is “wrong” in my judgment is to look to accumulate wealth simply for the sake of accumulating it without any purpose being served. In this case, investing simply to pile up the loot is no different than looking to win money in a casino for no purpose other than winning.

Most investors in their lifetime state regrets of having to have sold some great stock or multiple stocks advising how having held on to them would have meant they’d be worth millions or more today. However, they miss the point – successful investing is being able to deploy the fruits of one’s investments to the purpose of fulfilling their true purpose for the money. It takes some wisdom and financial maturity to come to the point of fully comprehending this.

One such individual articulated this beautifully in a letter written to Jason Zweig (who’s Wall Street Journal columns I regularly recommend) who responded just as brilliantly. They both nail one’s “true purpose for money!” These two items fully illustrate what I’ve written about for years: the true benchmark for investment success is not in “beating the market” or achieving astronomical returns (more often than not a matter of luck rather than skill) or even outperforming your friends and relatives but rather the benchmark of your own investment policy statement (IPS) which articulates in writing exactly what you are attempting to accomplish with your investment portfolio and the parameters of risk and return with which you intend to fulfill your goals.

Note well and invest wisely!

“I was just assigned a new private banker at JPMorgan Chase & Co. I [am a retired] JPM employee and have a nice portfolio of their stock....My adviser looked at my JPM portfolio over the years and noted that I had sold about half of my holdings. He pointed out, if I had held them, what they would be worth today.
I think this reasoning is a major flaw in determining an investor’s success. The success is not what the portfolio is valued at today, but what enjoyment the portfolio provided over its life.
For instance, I sold stock (which today would be much more valuable) to fund: children’s education, pay off my mortgage, fund a salary-deferral program and some lovely trips. How do you measure that?
I’d be worth a zillion more today, but that’s not what investing is all about. Successful investing is not about your portfolio value, it’s how you convert the returns to enhance the value of your life and the life of your family.
Thoughts?
—John McElligott, Dayton, Ohio”

“Hi John,

I think you are exactly right.

Many years ago, I wrote:

I once interviewed dozens of residents in Boca Raton, one of Florida’s richest retirement communities. Amid the elegant stucco homes, the manicured lawns, the swaying palm trees, the sun and the sea breezes, I asked these folks — mostly in their seventies — if they’d beaten the market over the course of their investing lifetimes. Some said yes, some said no. Then one man said, “Who cares? All I know is, my investments earned enough for me to end up in Boca.”

I can’t imagine a better answer. After all, the whole point of investing is not to earn more money than average, but to earn enough money to reach your own goals. The best way to measure your investing success is not by whether you’re beating the market but by whether your investments are growing steadily and rapidly enough to get you where you want to go. That means that staying put, in an index fund or even in a fund that is underperforming the S&P by a point or two, is better than climbing onto the whizzing treadmill of trying to beat the market. In the end, what matters isn’t crossing the finish line before anybody else but just making sure that you do cross it.

Your relative position -- how much you've made compared to other people, or how much you've made compared to how much you could have made -- matters only if you let it get in your head. The more it matters to you psychologically, the more it will harm your returns and the less wealth you will have in the end.

In short, I think you should be giving your financial adviser advice, not the other way around.

Be well and invest well,

Jason”