Portfolio diversified? Check. Good dividend yield? Check. Reasonable fees for performance? Check. Beneficiaries correctly listed? Check. Prudent level of risk with appropriate principal protection? Check and check.
Oh, if investing were this easy. Instead, there are thousands of options combined with the unique goals and concerns of each individual.
Truly exceptional investors feel that they have a near perfect plan, they've accounted for almost every variable, they've scoured the earth for the lowest cost investments, they diversified their portfolios with stocks, bonds, and alternative investments, and they were even humble enough to get a second opinion an adviser. Yet they still worry that there has to be one seemingly insignificant detail that's critical to achieving "investing bliss."
Contrary to all kinds of common investing advice, what’s really missing from their portfolio is actually emotion That’s right, emotion.
I know, I know you've been taught by people like me to turn off your feelings when it comes to investing and there's some wisdom to that. But what I'm talking about here is solving that nagging, unfulfilled feeling that you have about your portfolio and your retirement.
What successful and high-net worth aspiring retirees don't realize is that their genuine concern, stress, or worry has little to do with their investment strategy. Rather, it's caused by a disconnect between their financial life and their emotional life. Life-coach, Tony Robbins has done an excellent job illustrating this point in other aspects of life and I believe his wisdom applies here as well:
The 6 Basic Human Needs
Every person (and investor) has six human needs. These needs are universal, we all crave them, but we prioritize them differently. How do you prioritize yours? What are your top two needs?
Certainty: We all need certainty and stability in our lives, whether it's a stable job, dependable friends, or having a warm home to wake up in every morning. If you had total certainty, however, you'd be bored out of your mind because variety is the spice of life.
Uncertainty and variety: The surprise of the unknown and unexpected can be thrilling and make you feel alive, that's why we watch movies and sports, celebrate special events with gifts, eat at different restaurants, and travel.
Significance: Everyone craves to feel special, unique, or important. People look for significance in their work life by excelling among their peers and through innovation. Others search for significance in their personal life through a spouse, friends, or family. Through being significant to others we find connection and love. Connection and Love: humans are designed to want to connect with each other on a deep and authentic level. While this may seem worlds apart from investing, this desire for connection and love revolves around the need for growth and progress.
Growth and progress: Ever hear the saying, "if you're not growing, you're dying?” That's because it feels very uncomfortable to be stale. The world is constantly changing around you and you have to change with it or you wither. But the reason we grow, I believe, is to give to others.
Contribution: One of the most rewarding and fulfilling needs is to contribute to a cause bigger than yourself and give to others, and to leave a lasting impact or legacy. If this is a priority in your emotional or spiritual life, then it should also be found in your financial life.
So, which are the two most important needs to you? The angst that you have felt about your portfolio, your retirement, or your future could simply be caused by not matching where you live emotionally with where you invest financially. Even with a sophisticated investment plan, if your financial life doesn't match up with your emotional life then you're doomed to worry, regret, and stress out over your retirement. To have peace and truly live a fulfilling life and a remarkable retirement you must mirror and prioritize your financial life with your emotional life. Here's how to start:
If certainty is high on your priority list then you will need to allocate more towards vehicles that offer certainty. Principal protected accounts like CDs, fixed annuities, and government bonds (like TIPs) offer certainty in an uncertain world. These vehicles offer lower returns but may provide you that sleep well at night assurance.
If variety is what you crave most then there's no better place for you than the stock and commodity markets. Diversify among as many markets as possible including emerging markets, precious metals, soft commodities, global real estate, and small-cap stocks. People search for investment significance in different ways. Maybe it's owning luxury companies like Louis Vuitton, Mercedes-Benz, Apple, or Ritz-Carlton. Or maybe it's having a unique portfolio that's bespoke tailored to you—something no one else has.
If connection and love drive you, then your investment strategy should include companies that strive to make a positive impact in the world. There are also several "socially responsible" funds available. .
Growth is critical to any investment strategy and if this need for progress is high on your priority list then you'll need to include higher dividend paying stocks and higher yielding investments like REITs and secured floating income portfolios. Having an above average income yield will help you progress even when the market stumbles and corrects.
Finally, the greatest gift you can give is to contribute to others. That can mean different things to different people, but if you're hoping to leave a legacy to your family, church, or favorite charity, there's no better way than to leave tax-free money in the form of Roth IRAs or a wealth conversion strategy funded by low-cost permanent life insurance.
Rob Russell is the best-selling author of Retirement Held Hostage, CEO & CIO of the Ohio-based Russell & Company, a private wealth management firm specializing in helping affluent individuals ages 45 and up create and preserve their wealth. He co-hosts a radio show, authors The Rob Report blog, and has been interviewed by CNBC, FOX Business, The Wall Street Journal, and several other national and international media outlets.