It's 2020 - Pump Some Financial Iron

Well, it’s the New Year, and the start of a new decade! It’s time to get out that planner and start making goals, and for some it’s the same goal every year, “get in shape”. All the fitness goal setting posts and memes got me thinking about financial fitness, so like a Wall Street Hans and Franz, let’s pump some financial iron. I was recently having a conversation with a client who owns a gym. Keep in mind, this is not the kind where you go be seen, spending more time walking around, hydrating, and asking your neighbor if they are done with the hip abductor, but a place you go to work…HARD (speaking of, I should probably get my butt back in there). It’s not crammed with the newest, most expensive fitness gadgets that require a thirty-minute orientation to use, but when you observe the end of a boot camp session you’ll see a lot of sweaty, proud people, on their way to hitting their fitness goals. When we first started talking about financial well-being and investing, I went straight to the fitness analogy and it was even more applicable than I originally expected. Here are 5 principles that can apply to both physical and financial fitness (from a financial advisor, not a fitness instructor):

1) Forget the gimmicks, stick to the fundamentals:

One of the reasons I made a move from the bourbon industry (which I still happily support today) to the financial industry was watching investors being sold overly complex, expensive financial products that were not aligned with their objectives. Instead of sticking with the fundamental principles of long-term wealth building these investors were taking on excessive risk with products they didn’t understand. It was like watching on of those corny infomercials touting a cutting-edge fitness technology that is sure to melt the fat off and chisel those abs in just 6 weeks (if you don’t mind electro-shock therapy and can contort your body like a circus performer). Most people seeking a better physical shape (and hopefully a clearer mind) don’t need more gadgets, they need to develop healthy lifestyle habits and continue them over a long period of time. Investing is no different, it’s not the newest trading algorithm or chart pattern that is likely to change your financial life, it’s sticking to the principles that have proven effective over and over again. 

2) Persistence is key:

No one hits the gym one time, and after an exhausting workout checks themselves out in in the mirror expecting a major transformation, so why do people invest money with a long-term objective in mind, only to check their account balance daily and expect to see a miracle. Guess what though, if you hit the gym three times a week for a year and maintain healthy eating habits and look back at the dreaded “before” picture from the previous year, you’ll see that transformation occurred under the cover of time. The same is usually true for an investment portfolio. The day-to-day odds of seeing gains in a diversified portfolio is essentially a coin flip, but the longer the time frame you look at, the higher the odds of positive returns (the odds rise to approximately 92% over a 5-year period) (Bloomberg).

3) Get help (if you need it):

Some people prefer to work out alone in the comfort, and privacy of their own home. They have no problem getting and staying motivated and have everything they need to accompany a routine that works well for them. For others, its not so easy. They need the guidance, motivation, and expertise of a personal trainer, and the same goes for financial fitness. If you tried going solo and struggle to develop and stick with a long-term strategy that’s in line with your goals, find a financial advisor to help guide you and hold you accountable when necessary. 

4) Take the holistic view:

It’s easy to get caught up in the hype of intense workout and forget there is a lot more to health than having 24-inch Hulk Hogan-esque pythons. You still need to eat healthy foods, get adequate sleep, develop sound stress management habits, etc. When looking at the total financial picture it’s easy to hone in on one aspect and forget the others. As a financial plan starts to take shape there is more than retirement savings. There could be unique insurance needs, trust and estate planning, tax planning, education savings, and other elements that need to be considered.

5) Lay off the roids bro!:

There are many products out there that claim to boost your investment returns, and over short periods they might (I’m thinking leveraged products, MLPs, day trading strategies, options, etc.). It’s not that some of these products can’t be used in unique situations (similarly to specialty drugs when prescribed by a doctor), but these products are complex and using them in the wrong way can have unintended consequences (side effects).

As you move into the new decade and start setting goals, don’t neglect financial fitness. The most common comment I get from my clients, no matter how successful is

“I wish I would have started earlier”.  

So hit the financial gym in 2020 and start the long-term path to financial fitness.