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Pay Attention to Your Investments
Focus on both the big picture and the details.
DAVE MORAN, C.L.U., C.H.F.C, C.F.P.

In my experience, when it comes to financial planning, most people can be divided into two groups: There are those who can see the whole picture, but are not keen on the details, and those who can only focus on the details to the exclusion of the big picture. This is not to say that one approach is better than the other, but in my experience, it is a good idea to know exactly where you stand with your investments.

I have found that this division holds true with many physicians. My job is to get both of these groups — the big picture thinkers and those who see only on details — to the point where they do not lose their focus in either direction as I help them move closer to the personal and financial freedom they have worked so hard to attain. The following cases illustrate the benefits of this balanced approach to investing.

Missing the forest for the trees

In our story of working with the fictional Dr. Tree, we find that he is an excellent surgeon; a wonderful technician. When he first came to my office he had one goal in mind — to consolidate the hundreds of investment holdings he had accumulated over the many accounts that sprang up like dandelions each spring. He had IRAs, Roth IRAs and a couple of SEP accounts, as well as joint accounts with his wife and grown children. His individual account held stocks that were gifted to him by his parents or left to him at his uncle's death. No matter how many times he tried to consolidate this mess on Quicken he became frustrated trying to track aggregate performance, cost basis and tax reporting. Yet, he loved analyzing each individual investment and tracking its performance over time. Unfortunately, this information was not very useful because he had neither an investment strategy nor benchmarks in place.

Dr. Tree knew that he held some high-quality investments and he was usually proud to share the remarkable performance of these with his colleagues.

When I sat down with Dr. Tree, he was clear that he was just here for a "second opinion" and was not comfortable turning over the management of his money to someone else. He wanted to know what to keep and what to sell. After a few minutes of getting to know each other, I asked a question that may have sounded pretty foolish to Dr. Tree at first but he came to appreciate it as the conversation progressed.

"What's the purpose of the money?" I asked.

"Well, retirement obviously. I want to be able to retire in the next 6 to 7 years and I want the money to be able to support me in retirement" he said.

"That sounds wonderful" I said. "What's the plan? How are you going to do it?"

I was not challenging Dr. Tree. I was sincerely interested in knowing. After all, he had asked for my opinion on what to sell and what to keep. I could not answer that without knowing what he wanted to accomplish.

"I figure that if my investments earn an average 8% a year that will give me enough to retire on," he explained. I shuffled through the Quicken statements and leafed through the investment statements he brought to the meeting.

"How are you doing so far" I asked.

He said he could not answer that question. He listed some of the investments he knew were earning more than 8%, and the dogs that were "dragging down the performance."

"That's why I'm here. I need you to tell me what to keep and what to get rid of," he said.

At this point I took the time to share my philosophy on managing money and financial planning in general. We agreed that no matter the result of our meeting he needed to establish an investment policy for his assets. I directed a discussion of risk tolerance and setting financial goals ultimately suggesting that creating a cohesive investment policy would be meaningless unless he had established clear financial objectives. He understood there would be a certain amount of risk he would need to be comfortable with in attaining his goals.

He said to me,"in other words I have to choose between eating less well and sleeping less well?"

"Sort of," I said I then reminded Dr. Tree that most people are not "risk averse," but more likely they are "loss averse." The key is to have a plan in place that will help the portfolio grow with minimum turbulence along the way.

We continued to explore the benefits of planning and I assured Dr. Tree that once his investment policy was in place it would be working in concert with his overall financial plan.

Missing the trees for the forest

While our fictional Dr. Tree was interested in getting on track and then handling the management of his assets on his own, Dr. Forest was the complete opposite. Dr. Forest knew that he did not know and was not interested in learning the ins and outs of investing.

"We just need to help you develop a plan to get you where you want to go," I said.

We discussed his plans for the future. Dr. Forest was able to paint a bright picture of sandy beaches with a new sailboat anchored not far away while he and his wife swung lazily in oversized hammocks.

I asked him what his plan was to accomplish this dream. His response was "None."

"That's why I'm here," he said, as he pushed a pile of investment statements across the table to me. "You come highly recommended. I've got two other physician friends who rave about the work you've done for them. So let's cut out the in between stuff and you just put my money where you think it'll do the best job for me."

No doubt Dr. Forest was surprised when I pushed the stack of paper back to him and said, "Sorry. It doesn't work that way. You have to be at least as interested in your money as I am or this won't work."

He seemed to consider this for a moment. "I guess you're right. I just have a hard time getting interested in following the market everyday."

"I know," I said with a smile. "But I can promise you this won't hurt a bit."

Happy Endings

Although our fictional doctors came from different orientations, when it comes to managing investments they came to the same place. By being proactive and setting measurable goals, they have been empowered to follow a customized plan that reflects their personal styles and yet allows them to look objectively at their money.

Dave Moran, CLU,ChFC, CFP, is the senior vice president at Evensky & Katz. He has no financial interest in this information . Mr. Moran can be reached at davemoran@evanskykatz.com.