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How to piece together your investment puzzle

In my practice, new prospective clients will typically arrive on time, well-dressed and carrying an armload of brokerage and mutual fund statements. There is nothing wrong with being on time or even well-dressed, this being a casual town, after all.

The problem is with all that paperwork. Imagine you were sitting down to put together a puzzle. You spread the pieces all over the table, pull up your chair and get ready to fit this whole thing together. You now have a simple decision to make.

What is the most important thing to start with? The corners? The edges? Certain colors?

It is actually none of these. The most important thing you start with is the picture on the cover of the box. Until you know what you are working on, you cannot even begin to move the pieces around and fit the puzzle together.

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Most investors - and even most of their advisers - start out by pushing puzzle pieces around the table without ever knowing what the big picture is supposed to be. If you were going to write a book about how investments and money fit into your life, I suggest that you write the last chapter first and then start at the beginning. The table of contents comes last.

So, my new, well-dressed and prompt client is sitting here in my office. She is nervous. We’re all nervous about money. We should all be very nervous about turning it over to someone else.

The new client will usually stare wide-eyed as I take all those statements and paperwork and put them on the floor.

“We won’t need these today, but thanks for bringing them,” I’ll say.

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In making investment decisions for yourself, you need to dig a little deep first. Think over some of these questions.

First, look backwards:

  • What is your first memory of money?
  • Describe a moment in your life where you experienced a joyous occasion that involved money.
  • Describe a moment in your life where you experienced a sleepless night involving money.
  • What did money mean to your parents?

If we’re talking here about the future picture - the last chapter first - then why dig into the past? Our past experiences are inseparable from our futures, until we have dealt with them.
Then, think about the future:

  • When (if?) you retire, what are you going to do?
  • What is “enough?”
  • What is more important, your own lifestyle or a legacy for your children or community?
  • If you had all the money you could imagine right now, what would you do?
  • If all your money was taken away right now, what would you do?

An adviser I know told me the story of a client of his. The client and his wife were retired and had far more money than they could ever spend, yet refused to enjoy a dime of it.

They had grandchildren they loved dearly and wanted to help out with private school tuitions, yet couldn’t bring themselves to write the checks.

The adviser discovered the source of this paralysis. The client’s tax adviser had been telling them for years to keep their large mortgage because of the tax deduction. But, so long as they had a large monthly mortgage payment, the couple lived under a great weight of financial pressure and fear.

The tax adviser rightly calculated that they would save $50,000 over a 10-year period if they kept the mortgage versus paying it off. But this was a family with a total worth of nearly $10 million. They were sacrificing the one life they had over something as trivial as a mortgage tax deduction.

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This family was allowing one little puzzle piece to keep them from seeing the big picture and moving towards it.

Rick Ashburn manages investments for private clients. Write to him at rick@richardashburn.com or 7777 Fay Ave., Suite 230, La Jolla, 92037.