Don’t be trapped in the past

Williams 150x150Dan Williams, CFA, CFPInvestment Analyst

Just over 10 years ago on September 15, 2008, Lehman Brothers filed for bankruptcy shocking the global financial markets. In retrospect, the collapse trajectory was there for all to see with the shock being more attributed to people’s reliance on things staying the same than any new data. This clinging to the past was so strong that a postmortem analysis showed that Lehman Brothers employees, the very people who were the insiders to see the company’s problems, were shown to have kept buying stock. Many believed, both insiders and the public, that the stock was a compelling value as they anchored their valuation toward the stock high of $86.18 in February 2007. When the end finally did come for Lehman it was a long time coming based on the data stream but felt abrupt based on our ability to process the new reality. When a character in Ernest Hemingway’s novel “The Sun Also Rises” was asked how he went bankrupt he said, “Two ways, gradually and then suddenly.”

Not all individual stock downturns lead to a rapid collapse or even a permanent lower price range. Still, this anchoring to past prices is prevalent enough for investors to frequently be told to fear “value traps.” A value trap is a stock which looks cheap based on previous stock prices, but an analysis of future prospects show that the underlying stock’s fortunes have significantly and potentially permanently changed for the worse.

The fact that companies’ future prospects are always changing is a sign of a dynamic economy that through creative destruction increasingly improves the products for the consumers of an economy. Much has been made of the disruptive Amazon effect that through making the purchasing of products easier as the one-stop shop for online shopping has crushed traditional brick and mortar businesses and other smaller online retailers. It is bad for those businesses left behind but the consumers win.

This lesson of unreasonably expecting things to remain the same holds meaning outside of just the financial markets. In George Friedman’s 2009 book “The Next 100 Years” he opens by taking a quick survey of the way of things at 20-year intervals starting at 1900. He notes that in 1900, London was the capital of the world and Europe was at peace with great prosperity, in 1920 Europe was torn apart by an agonizing war, in 1940 Germany had reemerged to dominate Europe, in 1960 Germany was crushed and the United States and the Soviet Union were the superpowers, in 1980 the United States had been defeated in war by tiny communist nation North Vietnam showing communism was on the rise, and finally in 2000 the Soviet Union had collapsed with a United States hegemony being the state of the world. If I would take license to write his 2020 view, it would talk of the global uneasiness of a China on the rise to legitimately challenge the United States as an economic and political power.

What is clear is that things change and failing to try to at least look around the next corner is akin to walking backward. Just because you have not walked into a wall yet is a poor reason to expect an unending clear path. Our role as the investors of capital attributes special importance to forward thinking but it is a lesson for all to learn.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.

A crash course in financial maturity: 4 lessons for children going off to college

beaman 150 x 150Noreen D. BeamanChief Executive Officer

As a certified public accountant, I enjoy being organized and find it helps maximize my productivity during the day. Not only does organization benefit my professional life, but it also helps in my personal life, particularly when it comes to discussing financial readiness with my children. As I think back on the financial maturity fundamentals I imparted on my two daughters – one who completed law school and the other who’s completing her graduate degree – I find myself in a familiar position as I focus on my son who is a junior in high school and will be leaving for college in two short years. Below are some of the items on my financial maturity list that may help cover the basics as others face a similar situation.

1. Use resources wisely 

As simple as it sounds, insist that your child knows and makes good use of the resources at his or her disposal. For example, if you’ve bought a dining plan there should be limited spending on food outside the dining plan. Your child should regard credit at the campus store or library/print center as limited resources that only get replenished when wisely used.

2. Be choosy with checking 

Encourage your child to do some research and find the best banking option. According to NerdWallet, a student-focused checking account can save students an average of $110 or more in fees each year, when compared to the most basic account available to the general public. Your child should pay attention to the conditions that allow for the waiver of such fees. For example, some college checking accounts will waive the monthly fee as long as the student maintains a minimum balance, receives regular deposits, or links to a parent’s checking account. Have your child take notice of the banks which are most prominent on campus and those that have easy-to-access branch locations. If your child chooses a bank that does not have a local presence, make sure he or she is aware of how quickly service charges for out of network ATMs can eat into their account. 

3. Credit scores matter 

Your child needs to know the importance of building good credit, as future landlords, employers, and banks will use that score to determine eligibility for housing, jobs, and loans. Building good credit is a process that often starts in college.

Students with little or no credit history can often obtain credit if they are able to provide proof of capacity to repay debt, or if they have a co-signer, who can bear the financial responsibility for the debt.

If your child is going to get a credit card, make sure he or she knows to pay the full balance each month, and on time. They should also be advised only to make a purchase on credit if they know how to pay for it when the bill comes due. You should have a conversation about the importance of building a positive credit history to pave the way for future financial transactions. Additionally, they should understand that your credit score, as a co-signer, is at risk if they abuse the card privileges. 

4. Know where it’s going

Set the expectation with your child that when you ask where all the money is going, they have an answer. Encourage your child to download a free app, like Mint, to easily track and monitor spending and stay on top of account balances. Explain that tools such as Mint help increase awareness and lead to better financial decision-making.

There are only 940 Saturday’s between a child’s birth and leaving for college so enjoy the last few days, months, or years before they start the next chapter of their lives.

We at Brinker Capital believe goals are personal, so solutions should be too. Learn more about Brinker Capital and our investment solutions at BrinkerCapital.com.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.

You will never regret your vacation

Crosby_2015-150x150Dr. Daniel Crosby Executive Director, The Center for Outcomes & Founder, Nocturne Capital

Bronnie Ware is an Australian nurse who has spent her career in a palliative care unit, caring for those with very little time to live. As someone who interacts with the dying, she has had the privilege of speaking with these people about the things that make their life worth living, as well as what they wish they’d done differently. Ware summarized the top five regrets of those about to pass on in her excellent blog, “Inspiration and Chai.” The “Top Five Regrets of the Dying” are:

  1.  I wish I’d had the courage to live a life true to myself, not the life others expected of me.
  2.  I wish I hadn’t worked so hard.
  3.  I wish I’d had the courage to express my feelings.
  4.  I wish I had stayed in touch with my friends.
  5.  I wish I had let myself be happier.

Notice, not one mention of money and the only mention of work is to say they (especially male patients) wished they had done less of it. If you are like me (and perhaps like most people), you are chasing the wrong dream and setting the wrong goals. As you sit and evaluate your life as it draws to a close, I promise you that you will never regret the year your portfolio underperformed the benchmark, but you may well regret lost time spent living a life that confused money with what matters much more.

The Path Forward
In a money-obsessed world that has socialized us to chase the almighty dollar, it can be weirdly unsettling to learn that money isn’t everything. As much as we whine about money, having something that is the physical embodiment of happiness is nice. We can hold it, save it, get more of it, all while mistakenly thinking that getting paid is how we “arrive.” Realizing that money does not directly equate to meaning can leave us with a sense of groundlessness but once we’ve stripped away that faulty foundation, we can replace it with things that lead to less evanescent feelings of happiness. Breaking your overreliance on money as a substitute for real joy is a great first step, here are two ways to move forward upon having made this important realization:

Spend money in ways that matter – Let’s be balanced in the way we talk and think about money. It’s not the key to happiness, but it’s not nothing either. A lot of our troubles with money stem from the way we spend it. We think that buying “things” will make us happy. We engage in retail therapy which is quickly followed by feelings of regret at being overextended. Before we know it, we’re surrounded by the relics of our discontent; the things we bought to be happy become constant reminders that we’re not.

Instead of amassing a museum of junk, spend your money on things of real value. Spend a little more on quality, healthy food and take the time to savor your new purchases. Use your money to invest in a dream – pay yourself to take a little time off and write that novel about which you’ve always dreamt. Give charitably and experience the joy of watching those less fortunate benefit from your wealth. Finally, spend money on having special experiences with your loved ones. It’s true that money doesn’t buy happiness, but it can do a great deal to facilitate it if you approach it correctly.

Find a new metric – Part of the appeal of money as a barometer for happiness is that it’s so…well…quantifiable. Meaning, joy, happiness, and fulfillment are all abstractions that can be hard to get our hands around. Thus, we aim for something we can count (but end up sadly disappointed). So, take things that really will make you happy and try to come up with metrics for those things instead. Maybe you enjoy painting and you could set a goal to complete three new pieces by the end of the summer. Perhaps you want to be more service oriented and you could set a goal to engage in a charitable act each week. The impulse to measure happiness is a natural and good one, let’s just make sure we’re using a yardstick that delivers on its promises.

The Center for Outcomes, powered by Brinker Capital, has prepared a system to help advisors employ the value of behavioral alpha across all aspects of their work – from business development to client service and retention. To learn more about The Center for Outcomes and Brinker Capital, call us at 800.333.4573.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

 

Considering the use of benchmarks

Williams 150x150Dan Williams, CFA, CFPInvestment Analyst

A common, yet hard to answer, question for clients is “how are my investments doing?” By definition, the answer lies with benchmarks as a frame of reference but the semantics of their proper use often proves to be a stumbling block. Do you use a single broad index such as the S&P 500? Do you look at a risk equivalent blend of multiple broad indexes? Do you just look at the absolute return number? Additionally, do you look over the quarter, the year, or the decade of performance? Often the best way to properly use benchmarks is drilling down the context and the intent of this seemingly simple question.

This is to say, if the question is to assess how an investment portfolio is performing in the context of the current market environment, a blended benchmark of the neutral weights of a portfolio over a short time period is best. This is to say if you are looking at a large cap growth stock fund, you could look at the Russell 1000 Growth Index over the past quarter or year. If you wanted to judge a moderate risk portfolio with a neutral weight of 60% equity and 40% fixed income, you would turn to a blended benchmark of the same risk level over a similar period of time. However, while this shows how the portfolio is relatively performing currently, this comparison will serve as a poor judge of the true skill of the portfolio managers. Market conditions in the short-term favor different styles of investing over others. These preferences wax and wane over time with skilled managers proving their worth through the long-term of multiple market environments rather through every market environment.

Considering the use of benchmarks

As such, if the question is instead to evaluate the skill of a portfolio manager, the answer requires a much more rigorous analysis. You would like to see skill over various market environments and not just the current market environment. Accordingly, one of the many statistics that we look at is the percent of rolling 36-month periods that a strategy has outperformed its market benchmark. It is unreasonable to expect a strategy to outperform all such 3-year periods but a skilled manager should hope to do so more often than not. Additionally, looking at 7-year or longer time horizons provide a clearer view of how a manager faired after the dust has settled over one or more market cycles. As always looking at past performance only provides evidence of past skill and not necessarily future skill. The complete manager due diligence process extends beyond the numbers and requires additional work with regards to the qualitative characteristics of the managers and their organization.

A final way for this question to be asked is what should be most meaningful to the client. Specifically, how are the investments doing with regards to accomplishing the clients’ financial goals? Here we leave the market-based indexes behind and instead look to the absolute return numbers to determine if purchasing power is growing at a pace consistent with the investments savings goals. The time horizon of the evaluation should be consistent with the time horizon of the goal. In practice, a conservative portfolio that strives to deliver 3-5% a year for a goal that is 3-4 years away, should be evaluated by whether after 3-4 years if this return mandate is met. Similarly, an aggressive portfolio that strives to deliver 7-9% for a goal that is more than 10 years in the future should be evaluated over a period of at least 10 years against this return mandate. These return mandates could be further tweaked to be a spread in excess of inflation or a risk-free rate as clients’ goals are best defined as a growth in purchasing power rather than just a raw performance number.

It is clear that there is no one right way to tell clients how their investments are doing. Hopefully though helping clients define their “how are my investments doing” question can improve the relevance of the benchmarks and time horizons used to give an answer.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.

Investment Insights Podcast: The 60/40 portfolio in a world of rising rates, falling bond prices & increasing volatility

Tim Holland, CFA, Senior Vice President, Global Investment Strategist

On this week’s podcast (recorded April 27, 2018),
Tim takes a closer look at the 60/40 portfolio, including how the past few years were particularly conducive to such an approach to portfolio construction and why we have likely just entered a more challenging period for this model.

Quick hits:

  • Over the past few years, both bonds and stocks moved higher in value, really an ideal – and unusual – environment for a 60/40 approach.
  • We think 2018 marks the beginning of a tougher road for the 60/40 portfolio.
  • We also think 2018 marks the beginning of a more favorable environment for Brinker Capital’s approach to portfolio construction and asset allocation.
  • We remain constructive on the outlook for both the economy and risk assets as we move through 2018.

For Tim’s full insights, click here to listen to the audio recording.

 

investment podcast (26)

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Getting your investments up to bat

Williams 150x150Dan Williams, CFA, CFPInvestment Analyst

With spring comes my favorite time of the year. Yes, the weather improves and the days get longer. However, for me, it is baseball season and corresponding fantasy baseball season that excites me. Baseball more than the other major sports is a game of statistics. It is engineered to be a series of one on one duels between a hitter and a pitcher such that individual contributions can be isolated. However, much like investing, a focus on the short-term and randomness leads even the most astute into a false knowledge of skill, and it is only through long-term analysis can truer knowledge be gained.

Consider a single at-bat between a hitter and a pitcher. The outcome is going to be a hit, an out, or a walk. If a hit occurs, especially if a home run, it is assumed that at least at that moment the hitter is very good and the pitcher is very bad. If an out occurs it is assumed the reverse. If a walk occurs the hitter has managed the least favorable of the positive outcomes and the pitcher has let the least unfavorable of negative outcomes happen. There is additional analysis that can be taken into the semantics of these three outcomes but the point remains that we have a data point of an individual success or failure. Similarly, in investing over the course of a quarter or year of performance of an investment fund we have an outperformance, underperformance, or an approximate market return relative to the corresponding benchmark and again additional stats can be gleaned from the performance such as standard deviation, upside capture, or attribution by sector selection vs. security selection.

In both cases after a short time period, a game for a hitter/starting pitcher or a quarter of performance for an investment fund, the temptation is very strong to extrapolate the just observed outcomes into the future. A successful hitter could have been lucky or was going against a poor pitcher (or a good pitcher who was having an off day). Similarly, an investment fund could have made a few lucky stock picks or was in a market environment that simply worked well with the strategy’s style of investing.

getting your investments up to bat

So does this mean we ignore the statistics of the short-term? That is, of course, foolish as the short-term is what happens as we build the data for the long-term. We always want to know what happened as it helps guide us to what will happen. It is simply wise to temper the conclusions we can draw from data over short periods. It is also humbling to know that even with ample data that can provide very close to proof of past greatness, it can never be fully relied on to provide future insight. At this point, I would say we have enough data to say Babe Ruth was a very good baseball player. However, he has been dead for about 70 years (so he is in a bit of a slump) and even if we through the miracle of science could resurrect a 30-year-old Babe Ruth, it is not a certainty he would achieve the same greatness in today’s baseball landscape. Similarly, an investment fund or strategy type that achieved great success over the long-term in the past may not achieve it in the future.

So where does this leave us? The recognition of great skill recognized solely in the short-term is unreliable and the great confidence we can achieve through the very long-term analysis thereof is not very useful. This leaves us striving for the middle ground. We look at performance data of at least a few market cycles and we additionally gain extra insight through qualitative data by talking to our investment managers and understanding the how of what they do. Through this process, we strive to send the right people up to bat and hopefully, we deliver more winning than losing seasons.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.

Get more out of your charitable giving

Wilson-150-x-150Thomas K.R. Wilson, CFA, Managing Director, Wealth Advisory

Typically, when we think about giving to charity, we think of all the lives we enrich by our support. What we sometimes overlook is how great it feels to do good.

As Elizabeth Dunn and Michael Norton explain in their book, Happy Money: The Science of Smarter Spending, “Giving and happiness are mutually reinforcing, creating a positive feedback loop.”

Covering a broad spectrum of research studies, Dunn and Norton demonstrate how those who enjoy the emotional benefits of giving feel good about themselves and tend to behave more generously in the future. They also explain that those who give to others feel wealthier than those who do not make donations, and when prosocial spending is done right, even small gifts can increase happiness.

The best way to make sure you get the most emotional benefit out of your charitable giving is simple: make your gifts about you.

YOUR choice

Reaching into your pocket when you feel backed into a corner does not strike the pleasure centers in the brain as much as when you open your wallet because you felt compelled out of a sense of purpose to do so.

Part of YOUR big picture

Next to saving for retirement and college, charitable giving is one of the top financial priorities for many American families. It has earned a seat at the financial and estate planning table along with other financial goals, yet many people overlook philanthropy when setting and prioritizing financial goals.

When you make charitable giving part of your larger financial and estate plan, you can be assured that your generosity does not negatively impact any of your other financial goals and that you gain all applicable tax benefits.

Speak to who YOU are as a person

The charitable contributions you make should reflect your most deeply held values and beliefs. Before you write your next check to charity, stop to clarify your beliefs and preferences. Do you want to end hunger, fight domestic abuse, spur economic development in your community, or eradicate cancer? Think about where you want to make an impact globally, nationally, or locally. Do you want to give to many or few? Make a list of the top three to five causes that speak to your soul. The smaller the list, the more focused your giving, and the better you will feel.

Parameters set by YOU

If you are like many other givers, you don’t know how much you’ve given to charity until tax time. By establishing a charitable budget each year, you can make better decisions about funding levels for individual causes and initiatives. With the changes brought about by the Tax Cuts and Job Act, you should speak to your accountant about having your charitable donations distributed via RMDs or see if bundling your donations are right for you.

Organizations YOU trust

Whenever you make a donation,  it is a good idea to verify that the charity is legitimate and is capable of making an impact and fulfilling its mission. You can find information about a not-for-profit’s tax-exempt status, mission, and finances at Charity Navigator, Wise Giving Alliance, or Guidestar.

Make the impact YOU want

If you don’t specify how you want your gift to be used, the not-for-profit organization will likely spend the money on their top funding priorities. In some, but not all instances, the organization’s top funding priorities align with your interests. You can, however, make a restricted gift. In doing so, you earmark your dollars to serve a specific purpose, spelled out clearly by you in a written letter of instruction.

For 30 years, Brinker Capital has served financial advisors and their clients by providing the highest quality investment manager due diligence, asset allocation, portfolio construction, and client communication services. Brinker Capital Wealth Advisory works with business owners, individual investors, and institutions with at least $2 million. To learn more about the services available through Brinker Capital Wealth Advisory, call us at 800.333.4573.

The views expressed are those of Brinker Capital. Brinker Capital does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. 

Brinker Capital, Inc., a registered investment advisor.

Brinker Capital at FSI OneVoice 2018 in Dallas, TX

beaman 150 x 150Noreen D. BeamanChief Executive Officer

For the fifth year in a row, Brinker Capital is proud to be a Premier Sponsor of the Financial Services Institute OneVoice conference. This annual meeting provides meaningful education and networking opportunities for members of the independent broker-dealers we serve. The Financial Services Institute is important to the future of our industry as they continually advocate for a healthier, more business-friendly regulatory environment for independent financial services firms and independent financial advisors.

At the 2018 OneVoice event, we are pleased to be a part of the Advancing Women in Leadership Luncheon, a pre-conference workshop being held on Monday, January 29. At Brinker Capital, we believe creating an environment for professional development and networking for women in the financial services industry is critical to the enhancement of our industry.

On Tuesday, January 30 at 1:30 PM, Leigh Lowman, CFA, Investment Manager at Brinker Capital will be participating on the Processes and Procedures panel, where they will discuss Due Diligence team structure, tools, communication, and researching and monitoring of products. Leigh shares portfolio management responsibilities for the Brinker Capital Destinations program. She is also involved in the company’s investment process, including asset allocation, manager selection, and due diligence.

And, as part of the CEO Track, I will be participating in the Rep as Portfolio Manager panel on Tuesday, January 30 at 3:00 PM. This panel will address the many questions surrounding the proper usage of Rep as Portfolio Manager programs.

Be sure to follow FSI and the event on social media @FSIWashington

We’re looking forward to a great event in Dallas, Texas!

FSI OneVoice 2

Brinker Capital, Inc., a registered investment advisor

Can money buy happiness?

Crosby_2015-150x150 Dr. Daniel Crosby Executive Director, The Center for Outcomes & Founder, Nocturne Capital

“Wealth is the ability to fully experience life.” – Henry David Thoreau

In your Psych 100 class, you were likely introduced to the concept of “operationalization,” where one concrete variable serves as proxy for a fuzzier, harder to measure construct. It is no secret that for many, the amount of wealth they have amassed serves as shorthand for happiness, but such is hardly the case. While wealth is positively correlated with well-being to a point, disconnecting money from purpose is a formula for emotional bankruptcy. One such self-delusional variant of chasing money for happiness is the “I’ll stop ignoring my happiness when I reach XYZ number.” Your magic number may be a salary or it may be a wished-for dollar amount to have in the bank. Whatever it is, I can promise you that when you get there, it won’t seem like enough. You see, we are not conditioned to think of money in terms of “enough.” As one of my clients once said to me, “Doc, you can never be too rich or too skinny.”

The scientific name for this phenomenon is the “hedonic treadmill” or “hedonic adaptation,” referring to the fact that we must make more and more money to keep our level of happiness in the same place. What tends to happen is that our expectations rise and fall with our earnings (as well as other circumstances in our life), keeping our happiness at a relatively stable place. To demonstrate this effect, I’d like for you to consider two groups that seemingly have little in common – paraplegics and lottery winners.

Can money buy happiness

 
Suppose I asked you, “Which would make you happier, winning the lottery or being in a crippling accident?” Not too tough, right? So, we would hypothesize that one-year after the life-changing event, lottery winners would be much happier and paraplegics would be much sadder. But this is simply not the case. One year after their respective events, it makes little difference whether you are riding in a Bentley or a wheelchair – happiness levels remain relatively static.

Why? We tend to overpredict the impact of external events on our happiness. One year later, paraplegics have discovered their accidents were not as catastrophic as they may have feared and have coped accordingly. Similarly, lottery winners have found out that having money brings with it a variety of complications. No amount of spending can take away some of the tough things life throws at each and every one of us. As the saying goes, “wherever you go, there you are.” In much the same way, we tend to project forward to a hypothesized happier time, when we have more money in the bank or are making a bigger salary. The fact of the matter is, when that day arrives, we are unlikely to recognize it and will simply project forward once again, hoping in vain that something outside of ourselves will come and make it all better.

A recent Princeton study set out to answer the age-old question, “Can money buy happiness?” Their answer? Sort of. Researchers found that making little money did not cause sadness in and of itself but it did tend to heighten and exacerbate existing worries. For instance, among people who were divorced, 51 percent of those who made less than $1,000 a month reported having felt sad or stressed the previous day, whereas that number fell to 24 percent among those earning more than $3,000 a month. Having more money seems to provide those undergoing adversities with greater security and resources for dealing with their troubles. However, the researchers found that this effect (mitigating the impact of difficulty) largely disappears at $75,000.

For those making more than $75,000 a year, individual differences have much more to do with happiness than money. While the study does not make any specific inferences as to why $75,000 is the magic number, I’d like to take a stab at it. Most families making $75,000 a year have enough to live in a safe home, attend quality schools, and have appropriate leisure time. Once these basic needs are met, quality of life has less to do with buying happiness and more to do with individual attitudes. After all, someone who makes $750,000 can buy a faster car than someone who makes $75,000, but his or her ability to get from point A to point B is not substantially improved. Once our basic financial needs are met, the rest is up to us. Hard work provides the means, but we must find our meaning.

If happiness does not come from hitting the lottery and sadness is not borne of personal tragedy, what does make us happy? Well, fortunately or unfortunately (depending on how well-adjusted your parents are), a great deal of happiness comes from our “hedonic set point,” which is genetically determined. A ten-year, longitudinal study of 1,093 identical twins found that between 44 percent and 52 percent of subjective wellbeing is accounted for by genetic factors. So, roughly half of what makes you happy is out of your control I’m sorry to say.

Of the remaining 50 percent, roughly 10 percent is due to external circumstances and a whopping 40 percent is due to intentional activities, or the choices we make and the purpose we create. We discussed before how we tend to overrate the importance of the things that happen to us, and sure enough, only 10 percent of what makes us happy is accounted for by lucky and unlucky breaks. Eighty percent of the non-genetic components of happiness can be controlled by our attitude and by making choices that are consistent with finding true joy. The first step in this pursuit is ensuring that the goals we are setting for ourselves are consistent with finding true happiness.

If 80 percent of the happiness that is in our control comes from setting and working toward positive goals, what sort of goals should we be setting? Headey has found that goals focused on enriching relationships and social resources are likely to increase wellbeing. We connect with a number of close friends and find joy within those relationships. On the other hand, he found that goals based around monetary achievement have a negative effect on overall wellbeing. Unlike friendship, which we “consume” in limited but satisfying quantities, we feel as though we can never really reach a financial goal. Having a core group of close friends sates us; it is sufficient to meet our social needs and we do not pine for ever-greater numbers of friends. Not so with financial goals; just as we reach our former goal, the hedonic treadmill kicks in and our excitement over having “arrived” is gone in an instant. Dr. Daniel Gilbert, a happiness expert at Harvard University, says that pursuing wealth at the expense of more satisfying goals has a high opportunity cost. “When people spend their effort pursuing material goods in the belief that they will bring happiness, they’re ignoring other, more effective routes to happiness.” The simple fact is this: chasing money and material goods is an itch that our flawed psychology will never let us scratch, unless we can define our financial goals in terms of the personal ends they will meet.

In a money-obsessed world that has socialized us to chase the almighty dollar, it can be weirdly unsettling to learn that money isn’t everything. As much as we whine about money, having something that is the physical embodiment of happiness is nice. We can hold it, save it, get more of it, all while mistakenly thinking that getting paid is how we “arrive.” Realizing that money does not directly equate to meaning can leave us with a sense of groundlessness, but once we’ve stripped away that faulty foundation, we can replace it with things that lead to less evanescent feelings of happiness. Breaking your overreliance on money as a substitute for real joy is a great first step, a second step is learning to spend your wealth in ways that matter.

Lest we swing from the extreme of “money is the only good” to the opposite extreme of “money is no good,” it is worth noting that there are ways in which money can be spent to improve happiness. A lot of our troubles with money stem from the way we spend it, thinking that buying “things” will make us happy. We engage in retail therapy, which is quickly followed by feelings of regret at being overextended. Before we know it, we’re surrounded by the relics of our discontent; the things we bought to be happy become constant reminders that we’re not. Instead of amassing a museum of junk, spend your money on things of real value. Spend a little more on quality, healthy food and take the time to savor your new purchases. Use your money to invest in a dream – pay yourself to take a little time off and write that novel about which you’ve always dreamt. Give charitably and experience the joy of watching those less fortunate benefit from your wealth. A growing body of research suggests that the most important way in which money makes us happy is when we give it away. Finally, spend money on having special experiences with your loved ones. It’s true that money doesn’t directly buy happiness, but it can do a great deal to facilitate it if you approach it correctly.

The Center for Outcomes, powered by Brinker Capital, has prepared a system to help advisors employ the value of behavioral alpha across all aspects of their work – from business development to client service and retention. To learn more about The Center for Outcomes and Brinker Capital, call us at 800-333-4573.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.

Investing in Game of Thrones

Williams 150 X 150Dan Williams, CFA, CFPInvestment Analyst

Nothing else could make me, and many others, actually look forward to Sunday night like Game of Thrones. Of course I felt a need to draw some wisdom to the investment world from this show if for no other reason than I get to relieve my separation anxiety from the many months until the show comes back for its final season. Thankfully this season lends itself easily to the task.

For those unfamiliar with the show let me sum it up as briefly as possible (warning vague spoilers). There exists a continent called Westeros that is divided into numerous houses/kingdoms that swore fealty to the House that sits on the Iron Throne. In the recent past, there was a rebellion that disposed of the longstanding ruling House Targaryen and drove the surviving member(s) of the house off the continent into hiding. The show opens with a member of House Baratheon sitting on the throne. Well, that king gets killed “by accident on a hunting trip.” His best mate, who is head of House Stark, becomes involved in investigating the situation in the capital city and gets beheaded. House Lannister slides onto the throne by a member of the house being conveniently married to the former king. This whole situation causes much trouble as House Stark wants revenge, House Targaryen and Baratheon want to take back the throne, and the rest of the Houses see opportunity to reposition themselves. A bunch of people kill some other people by various methods. Some body parts get cut-off. Some dragons show up. Some people come back from the dead by unnatural methods. Really a classic story. So that is it.

Wait! I forgot! Up north there are reports of a huge frozen undead army being formed that threatens to sweep down and kill everyone. This threat is summed up as “Winter is coming.” No biggie, right? Oops!

GOT.Winter is Coming
The parallel that can be drawn to the investment world is that while people are chasing and comparing themselves to each other’s performance and asset class benchmarks, they take the eye off the primary goal – survival. The Houses all want more castles and the glory to sit up on the Iron Throne while John Snow, one of the show’s main protagonists who has been positioned up north for the majority of the show, said this season “If we don’t put aside our enmities and band together, we will die. And then it doesn’t matter whose skeleton sits on the Iron Throne.”

While we are not necessarily battling our neighbors – like the houses of Westeros – for bragging rights of investment returns, it is still the wrong struggle to have. The great threat to the north is our inability to meet our goals due to poor investment planning. We can go off track by spending too much or saving too little. We can take on too much or too little risk or invest in the wrong account types. We can be operating tax inefficient. We can fail to insure against the unlikely but devastating potential life events. Planning with an advisor should be focused on setting a path that provides the best likelihood for success against this enemy of insufficient assets for our goals rather than the bragging rights of a few year of investment returns.

During this season, attempts were made by John Snow to refocus the warring houses to the real threat of the north. This threat has been lurking for all seven seasons of the show and the big question is – is it too late for them? Similarly, the challenge of investment goal planning is easiest when taken on as early as possible or before winter comes. The adviser’s role is similar of that to John Snow’s, get their clients to start to properly prepare as early as possible for the threats that matter.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a Registered Investment Advisor.