Broker Check

The Tale of the Investment Unicorn

| September 23, 2016


When it comes to successful investing, what is critical and what is not?  We believe there are really only two reasons people invest.  They want to either maintain or improve their situation relative to taxes and inflation.  If these two things were not the reasons, more investors would be willing to put money in a coffee can.  I want to expand a bit regarding what drives people to invest vs. the coffee can approach and introduce you to the myth of the “Investment Unicorn.” 

I have had hundreds, if not a thousand discussions with our clients about this topic.  I like to ask the following questions in order to establish an investor’s motivation to invest his/her hard earned money:

  1. Why are we sitting here? Is your motivation to invest personal in anyway?  I bet it is.  Does it have anything to do with your perceived responsibilities to yourself, your family or to other social aspects?  Examples of perceived responsibilities could relate to college planning, long-term care planning, legacy planning, charitable planning, business succession planning and certainly financial independence planning. 
  1. How would you describe the myth of the “Investment Unicorn?” Below are answers to questions about this mythical perfect investment:
  1. Would it grow like crazy?  Of course!
  2. Would it spin off income like crazy?  Even better!
  3. Would it all be tax-free?  Who wouldn’t like that?
  4. Would it be immediately liquid?  Absolutely! 
  5. And lastly, would it be fully guaranteed?  You had me at “hello.” 

Now, sadly, there is no such mythical “Investment Unicorn” that has all of these features.  So why then do investors having trouble letting go of this quest for the Investment Unicorn? 

Our human mind yearns for the discovery of this creature.   Advertisers and the media, especially financial media, know we are prone to be drawn to the perceived idea of its very existence.   The Massachusetts Institute of Technology AgeLab researched and discovered that the number one attention competitor to financial advisors clients is the financial media.  They are very good at stealing investors’ attention and I tend to agree and here’s why.

This explanation will resonate with those from big families.  My wife comes from a family of five girls.  I married the oldest and have had dinners where all five sisters were sitting at the table along with their parents.  More than once I have observed the conversational noise level will begin to elevate, then get louder, and finally, really loud.  It wasn’t an argument, but everyone had something important to say about a topic.  I have been told by my wife that this is a normal form of communication for them.  What I observed was that whoever spoke the loudest at the table was usually the one who was heard. 

The media is the same way.  The financial media is not only loud but they operate 24/7.  The financial media is masterful at stealing our investing attention.  Joseph Coughlin, PH.D., is the founder and director of the MIT AgeLab.  “There is so much digital noise coming to the consumer in such a way we’ve got to prioritize it for them,” Coughlin says. “Studies have been done around helicopter and fighter pilots.  They have so much coming at them, they have to be able to have the discipline to know what’s critical and how to give it the most attention.”

What is critical and deserves the most attention?  Take a minute and really think about this question.  Can you clearly understand how it applies to you?

Just as the fighter pilot needs a wing man, we help investors prioritize what is critical and most deserving of their attention.   Doing so will help prevent "Investment Unicorn" tunnel vision that could crash their investment plans.

What we do in our world is to structure customized investment strategies that include elements of each of those traits that are relevant to an investor’s particular situation.  We are going to spend time helping investors’ focus on things they can control, such as asset allocation strategies, their savings rates, investment costs, and envisioned time horizon.  The goal is to tie the information discovered into the structure of the strategy phase.      

This simple analogy describes our process in a way that an investor can relate to.  If we can succeed at simplifying, on the surface, portfolio construction in a way that is easily understood, then we believe investors stand a better chance of ignoring the financial noise and will have the level of discipline to know (as does the fighter pilot) what is critical and important to them. 

Based upon our experiences working with like-minded investors through this process, the decision to invest will always come down to your core emotional and financial reasons at that time.  If you have a comprehensive team and a plan in place you should be able to recognize which pieces of advice make sense for you and your situation.   If you would like to learn more about this topic or would like a complementary review, we are as close as the nearest telephone and would welcome your call.  

Written by Phil E. Gose