“A Man is Rich, Only in Proportion to the Number of Things he can afford to let alone” – Henry David Thoreau
The Rule of 168
Do you really want to have a great quality of life?
If so, I can share the secret with you. Like most important truths in life, it’s really pretty simple. In reality, there are three and only three facts that really matter to the quality of your life here on earth, which together I call “The Rule of 168”:
There are only 168 hours in every week. No matter your age, how much money you make, how much power you accumulate, or how smart you are, there are no exceptions to this fact. Your quality of life is a direct function of how you choose to spend those hours.
Some things in life can be delegated, but many of the most important things cannot. You can’t pay someone else to spend time with your family for you, take a vacation with you, read a great book for you, or play golf for you.
The key to a high quality life is to focus on the truly important things, which are most critical to your quality of life and which cannot be delegated, and find someone else to take care of all of the less important things.
In other words, it is smart to pay someone else to mow your lawn, launder your shirts, change your oil, or clean your gutters, so that you can do all the things that you can’t pay someone else to do, like exercise, spend time with your family, take vacations, play golf, volunteer for a charitable cause, or become better in your career.
The quote above from Henry David Thoreau is incredibly insightful, about what it really means to be “rich”. One of the primary benefits of worldly riches is that money can buy you the freedom of your time and allows you to multiply the number of things you can “afford to let alone”, and pay someone else to do for you. After all, as Ben Franklin said, “Time is the stuff that life is made of”.
That’s it. It’s that simple. If you can simply master this rule, and spend your precious time on the things that are really important, and don’t waste time on things that are not important, you will have an amazing life.
The Service Economy
The good news is that, in America today, we live in a Service Economy. Most Americans embrace the idea of paying for services we don’t want to do ourselves, and our economy revolves around the service sector. As a result, there is no shortage of interesting opportunities to offload things you don’t wish to do yourself, and to pay for services to make your life better.
The financial services industry is no exception. Firms try to differentiate themselves among a crowded field by making claims of better investing performance, lower fees, smarter advisors, or more exclusive brand names. We believe, at the end of the day, the true Value of professional financial advice is that it should allow you to:
Delegate the management of your wealth to an advisor who you trust, so that you can simplify your life and focus on the things that are more important to you.
This value hinges most importantly on the phrase “an advisor who you trust”…after all, if you don’t trust the people handling the details of your money for you, it is impossible to feel comfortable delegating that job. Unfortunately, the public perception of the trustworthiness of the financial advice industry is less than pristine. As a result, many providers have difficulty making a credible claim to a value based on trust. Instead, many choose to base their value on something which is unpredictable, and difficult to deliver consistently…the promise of superior investment performance.
Investment performance is by nature unpredictable and inconsistent – even the very best investors endure periods of time when their “relative performance” is disappointing. Although having an experienced advisor gives you a better probability of achieving investing success than if you tried to do it on your own, there is no “Black Box” or “Magic Formula” to investing success. Financial advice firms who make a promise to clients that they will always consistently provide superior results will invariably disappoint. As a result, it is very common for clients to become disillusioned by their advisor when performance lags, and end up jumping from advisor to advisor, in search of the “Holy Grail” of investing success. Instead, they end up missing out on the consistency and confidence that comes from a long term relationship with an advisor based on mutual trust.
In reality, a great advisory relationship should be based on your ability to offload the management of your money to someone more experienced, and more focused than you, so you don’t have to worry about it and can focus on more important things.
Is it Worth it?
By promising consistently superior investing performance, it is easy for a financial advisor to justify charging a big fee. After all, if your advisor helped you to “beat the market”, even after paying her fee, then she is worth every penny. If her value proposition is to enable you to delegate the job of managing your wealth, it may be more difficult to command a big fee – until you consider what you are actually delegating:
The 10,000 hours to Mastery
In his best-selling book Outliers, Malcom Gladwell explores the idea that mastery of any complex task requires a critical, minimum level of practice, which researchers have identified as 10,000 hours.
For most people, planning their long term financial success is the most important project they will ever undertake, and is one that requires Mastery of the subject matter. It is probably a good idea to pay someone who is willing to (or already has) spend those 10,000 hours, so that you don’t have to.
There is an old legend that Henry Ford once balked at paying $10,000 to General Electric for work done troubleshooting a generator in his manufacturing plant, so asked for an itemized bill. The engineer who performed the work sent this:
Making Chalk mark on generator: $1
Knowing where to make mark: $9,999
Ford paid the bill. When you pay a financial advisor, you are paying for his ability to know “where to make the mark”, which probably took him a lifetime of experience to learn.
The stress, worry, and mental energy of dealing with uncertainty
Investment markets are inherently uncertain and unpredictable. The practice of managing money is essentially a challenge to remain focused and disciplined, even in the presence of the massive amount of fear, greed, uncertainty and emotion that exists in the markets on a daily basis.
This practice can cause a great deal of stress, anxiety, self-doubt, and burnout among even the most seasoned professional investors. Investing can be a mentally and emotionally draining pursuit, particularly for those who don’t do it for a living, and particularly when your own personal financial future is on the line.
Paying a financial advisor is your ticket to freedom from the stress, distraction, and uncertainty of dealing with investment decisions. It is your permission slip to free your mental and emotional energy from worrying about what the stock market is going to do tomorrow, so you can use that mental energy on something you really care about – because you are paying someone else to do your worrying for you.
Guilt over what you don’t know
Most of the financial media, and people who sell financial products, magazines, and information spend a lot of advertising money trying to convince you that you need to “become educated” about finance and wealth management topics. They have a vested interest in making you feel stupid, inadequate, or you are “missing something” if you don’t educate yourself.
You hire a great financial advisor so you can free yourself from that guilt, and from the time it would take to learn all that stuff – because your advisor already knows it. When you trust someone who has spent the 10,000 hours to master the topic, there is no need to become educated. After all, as the old saying goes: would you prefer to take the time to learn how to build a clock, or do you just want to know what time it is?
Last but not least, keeping track of all of the details
Of course, the actual administration and management of your financial plan, and keeping your house in order, is a big job that takes a lot of time.
There are forms to keep track of, applications, elections to make, logins to remember, planning checklists to attend to, and details to monitor. There are investment, tax, cash flow, insurance, and estate planning disciplines to consider, and to find and manage professionals in each of these areas.
Doing all of this work accurately and efficiently, without making important mistakes, takes a lot of time, and for most people is probably fairly boring as well.
Trust is the Key
Planning your financial future is clearly much different than mowing your front lawn. If you hire a landscaper and he makes a mistake mowing your lawn, just wait a couple of weeks and it will grow back. If your financial advisor makes a big mistake, or even worse, violates your trust, your entire financial future could be in jeopardy. This is why this value promise hinges so importantly on the phrase “an advisor who you trust” – after all, if you don’t completely trust someone to handle the details of your money for you, it is impossible to feel comfortable delegating that job.
Fortunately, recent developments in the financial advice industry are making advisors more “client centric” in their behavior, and should hopefully improve the overall trustworthiness of the industry. Our next article [Part 2: Trust Me!] focuses on these developments, and how you can be on the lookout for an advisor who is suitable to act as your family’s trusted advisor, and a fiduciary for your best interests.
The Buffett Rule
There is great wisdom in the recognition that time and personal energy are the most precious resources any of us possess, and that both should be spent wisely. The key to a great life is to focus both on the things that are most important to you, while saying “no” to the things that are not.
As Warren Buffett puts it, your success in life will be more a function of the things you say “no” to, than the things you say “yes” to. He recommends a simple process for focusing your time and energy in life:
Make a list of the top 25 things you want to do in life.
Then take the top 5 and separate it from the bottom 20.
NEVER LOOK AT THE BOTTOM 20 AGAIN!
If managing your personal finances is not in your “Top 5”, I recommend that you immediately go find a financial advisor* you trust to do it for you.
* At Concentus, we prioritize the determination of “Fit” as the first and most important step in any potential advisory relationship, before moving on to a discussion of the specific planning advice and services our clients require. Because of this focus, we have developed a self-discovery tool called the Advisor Right Fit Scorecard to help people embark on the process of selecting the very best financial advisory platform to meet their needs.
You can use this tool to evaluate your own mindset and expectations, and to help you discover what is likely to be the most effective type of advisory relationship for you and your family. It may also help you avoid making a poor choice, and the bad experience of making this realization too late.