CINCINNATI BUSINESS COURIER
September 30 – October 6, 1985
INVESTMENTS
Charles Vaughan
What’s Important
DAYDREAMING is a much maligned pastime, especially by employers, and rightly so. However, from a strictly personal standpoint, it can be one of the investor’s most productive activities. It is one of the few purely unforced creative activities in which all people engage. When properly utilized, it can help us to solve one of our knottiest problems. That is, what is my real investment objective.
Investment professionals universally grapple with the problem of trying to get clients to give us a clear definition of investment goals. We expect the investor to categorize himself for us into such groupings as income with safety or longterm growth with moderate risk.
When reducing goals to such labels, we tend to commit two large mistakes. First, we assume the investor knows what the labels mean, which is often far from being true. Second, we lose sight of the fact that goals are dynamic not static.
As clients mature and lifestyles change, so do life plans. It is hardly adequate to merely change the labels for investment objectives.
A much better approach is what I call lifestyle planning. In this method, the investor is asked to define what is important to him. Consider a defined investment objective of wealth accumulation through longterm growth and tax sheltering. Three different investors all with equal incomes and all age 50 might require totally different handling. Perhaps one is building wealth for systematic consumption beginning at age 65 in a leisurely retirement, including extensive travel. A second might live a very frugal personal existence with no retirement intentions in order to leave a maximum inheritance to his family.
The third might consider wealth accumulation a life game in which he who accumulates the most wins. The labels might be the same, but the meanings would be miles apart.
One way to attempt to find out what is important to you is to examine three areas of your life.
1. Where do you spend your discretionary dollars?
2. Where do you spend your leisure?
3. Where do your thoughts turn when you are not otherwise occupied? That is, what do you daydream about?
The systematic development of answers to these questions will help you fix on your current investment objectives. An extension of these questions by projecting them into the future five years, 10 years or at retirement, will help define longterm goals. A critical annual review of investments and lifestyle plans would help to assure performance consistent with your real goals.
You should be master over your money, not vice versa.