The Investment Coach

Simon Sinek, former advertising executive and author, proffered his famous Golden Circle, proclaiming, “Start with your ‘why.’” In trying to sell a product or idea, most people start with “what.” What the product or idea is. Then they explain “how it works.” Sinek says that’s backwards.

First, start with why. What is your cause? What do you believe? How comes second. What is your process? What actions do you take to realize the Why? What is the result of Why. It’s what you do.

The “why, how, what” construct is useful in examining all manner of conundrums, including those beyond product marketing. We see articles in the financial press about “behavioral economics.” While academic papers on the subject can seem ponderous and erudite at times, the essence of the matter is understanding why people do what they do in their relationship to money. Financial planners must go beyond what people do with money and investments, and how they do it, and start with why?

“Behavioral economics” applies psychological insights into human behavior to explain economic decision making. Editor Carly Schulaka, Journal of Financial Planning, May 2018, interviewed economics professor and researcher Shachar Kariv on individual preferences. Kariv postulates, “All decisions in life—large and small, financial or not—are governed by three fundamental trade-offs: risk versus return, today versus tomorrow, and self versus others. Preferences are basically the attitude with which people are solving these trade-offs.”

Often a financial advisor is looking at what people have done in their money life while pondering why they did what they did. While the “three trade-offs” are a valid observation, the “why” may be a bit more basic.

At one’s core, money decisions are driven by a fundamental need for security. It’s Abraham Maslow’s Hierarchy of Needs at work. Until basic needs are satisfied, people are not going to save money, debate “today versus tomorrow,” or discuss “risk versus reward” tradeoffs in a specific action or investment strategy.

Beyond basic security, once people have sufficient income or cash flow up to their margin of safety, they still may not think about why, how, or what. They just do something without relating it to the big picture. There’s no comprehensive plan. They’re busy with frantic lives, multiple and conflicting demands, without the bandwidth or experience at times to see how one thing relates to another, or why a different move or strategy might be better from an overall standpoint.

It may be unwise decisions related to debt. Or emotional decisions made under pressure related to someone else’s agenda. How often have you or someone else said, “I don’t know why I did that!”

Early in my marriage, my new bride (now celebrating 51 years together) asked, “Honey, will there be any extra money this month?” At the time I worked for an airline and becoming a Certified Financial Planner was an unknown concept, and yet to be. Perhaps presaging my future I replied, “There will never be ‘extra money.’ There’s only money, and then there’s priorities.” As I recall, at the time she was not overly impressed with the logic behind that, thinking I was being obtuse.

The point of financial planning is to deal with “why” up front. With a specific pool of assets, or “extra money,” what are the trade-offs? Yes, risk vs. reward is fundamental, as is today vs. tomorrow, and self vs. others. “Others” may involve immediate family, other loved ones, charity and stewardship. For entrepreneurs, closely-held business owners, professionals, and decision makers in any enterprise or institution, “others” include employees and associates over pure self-interest.

Financial advisors normally are not psychologists or licensed therapists. We are, however, observers of human behavior, and for those who have been at it awhile, we can spot potential seeds of destruction behind the money. Take the Seven Deadly Sins—pride, greed, lust, envy, gluttony, wrath, and sloth. We know how they drive money downfalls and financial ruin. The more we become an objective observer in the client’s experience and outcomes, the easier it is to figure out the “why’s” that will lead to the “how” and “what.”

Why do you want what you want? The challenges ahead? How might we get you there, the alternatives available, the resources needed to power the best percieved alternative?

What is your preferred outcome? What do you wish to experience? What do we do today to move toward tomorrow’s desired result? It’s the Golden Circle and behavioral finance made simple!

Lewis Walker, CFP®, is a financial life planning strategist at Capital Insight Group; 770-441-2603. Securities and advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative and investment adviser representative of SFA which otherwise is unaffiliated with Capital Insight Group. He is a Gallup Certified Strengths Coach and a Certified Exit Planning Advisor (CEPA®).

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