Soundmark Wealth Management was founded on the principles of “The Coffeehouse Investor,” the first book written by Soundmark’s owner, Bill Schultheis.
In his latest column, Bill shares his thoughts on building wealth and why a Coffeehouse portfolio gives investors the freedom to ignore the markets and focus on the financial planning issues that matter most of all.
The simple idea of “building wealth” conjures a wide range of emotions. It’s growing a portfolio of financial assets while we are working to sustain ourselves when we are retired.
But the expression “building wealth” also means the growing of relationships with families, friends, our co-workers, and communities. Building wealth means taking the time to nurture our physical well-being and emotional net worth by tuning in to our inner voice that guides us through our daily activities.
Along the way, we also need to attend to society’s definition of “building wealth,” by growing our financial resources to accentuate our greater purpose on Earth. For a broad swath of the financial services industry, building wealth starts with processing economic indicators, identifying leading industries, and choosing the top companies within one’s investment portfolio.
But portfolio management is diametrically opposite to Wall Street’s approach of building wealth. Creating a successful portfolio begins by acknowledging that markets are efficient. Any attempts at picking the top stocks in the leading industries is likely to produce disastrous returns over the long haul. A more efficient approach to portfolio construction is to capture the market’s entire return through low-cost index funds.
Let’s take a closer look at our simple approach to building portfolios and the impact it has on addressing all dimensions of our wealth-building efforts.
A Coffeehouse portfolio allows you to maximize the returns of each asset class within your portfolio. It’s not that you can’t “beat” the market through individual stock selection; it’s just that your chances of outperforming a benchmark over a lifetime of investing are minuscule. Statistics show that the harder you try, through active trading, the worse your portfolio will perform.
A Coffeehouse portfolio allows you the freedom to ignore the markets and focus on the financial planning issues that matter most of all. It starts with creating a financial plan that offers clarity on saving (while you are working) and spending (when you are retired). A sound financial plan offers guidance on your asset allocation between stocks and bonds, so that bear markets are not a surprise, but an opportunity to rebalance your portfolio. Your financial plan will include thoughtful attention to your estate plan, tax management through portfolio design, risk management through insurance planning, and addresses the biggest unknown of all — unexpected health care costs in retirement.
A Coffeehouse portfolio allows you the emotional freedom to ignore the whims of Wall Street and turn your creative energy toward things in your life that matter, like your career, your family, and your community.
For a small number of investors, keeping up with daily market movements can be fun and entertaining. For the rest of us, we are using our intellectual energy to focus on more meaningful endeavors with a purpose that brings meaning to our lives.
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