Tag: Living Well

How Much Do Investment Losses Really Matter?

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How Much Do Investment Losses Really Matter?

When it comes to managing your investments, losses can have a bigger impact than you might think.

The Impact of Early Losses

Imagine you retired in 1981 with $500,000. Your financial advisor told you that you could safely withdraw 4% of your savings each year for the rest of your life. Following this advice, you would have ended up with significantly more money in 2010 than you started with, thanks to favorable market conditions.

Investing $500,000 with a 4% withdrawal rate from 1981 to 2010 offered investors no trouble.
source: Directional Advisors

Now, let’s change the scenario. What if you retired in 1930 with the same $500,000 and the same 4% withdrawal rate? That scenario doesn’t turn out nearly as well for you.

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But wait! Isn’t that because of the Great Depression in 1930??

Well, the average annual return from 1930 to 1959 was 12% — which was the same annual return from 1981 to 2010!

Despite the same average annual returns you would have ended up with about half of your initial savings after 30 years if you started in 1930.

Why? Because the early years of the Great Depression were so devastating that your portfolio never fully recovered.

Investing $500,000 with a 4% withdrawal rate from 1930 to 1959 gave investors a real heartache, when compared with 1981 to 2010, despite both having the same average annual return of 12%!
source: Directional Advisors

Sequence of Returns Risk

This example highlights a critical concept known as “sequence of returns risk.” It’s not just the average return that matters, but the order in which those returns occur. If you experience significant losses early in retirement, it can drastically reduce the longevity of your portfolio, even if the overall average return is strong.

Understanding how much you can afford to lose before it becomes detrimental is a key part of financial planning, though very few advisors do this level of analysis. In fact, this is an area of research pioneered by our founder. [1] [2]

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Let’s Talk About Your Future

We’d love to help you navigate these complexities and create a plan tailored to your needs. At the end of the day, your job is to dream about your ideal retirement, and our job is to help you work out the details. By understanding your goals, we can develop a strategy that aims to protect your investments from significant losses and ensure a comfortable and secure future.

Investment losses matter more than you might think, especially when they occur early in your retirement. By recognizing the importance of sequence of returns risk and taking steps to mitigate those risks, you can better protect your dreams.

Let’s work together to create a plan that helps you navigate these challenges and secure your financial future.

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This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

Trust

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Two Kinds of Trust

When it comes to managing your money, trust is everything. But did you know there are actually two types of trust you need? Both are super important for making sure your finances are in good hands. Let’s break it down and see why each type of trust matters.

The First Layer of Trust: Intentions

The first type of trust is what most people think of right away. It’s the do you have my best interests at heart? kind of trust. You want to be sure that the person handling your money genuinely cares about helping you reach your financial goals and isn’t just looking out for themselves. It’s about feeling confident that they’re on your side and want the best for you.

The Second Layer of Trust: Competence

The second type of trust is just as important, but it’s often overlooked. This is the can this person do what they say they can do? kind of trust. It’s not enough for someone to have good intentions; they also need to know what they’re doing. They should have the skills, knowledge, and experience to manage your money effectively.

This is where things can get tricky, especially if you’re thinking about asking a friend or family member to help with your finances. Even if you trust them personally, they might not have the expertise needed to handle your investments properly.

Why Both Layers Matter

As a financial advisor, I’ve seen how crucial it is to have both types of trust. Many people assume that because they trust someone personally, that person is also capable of managing their money. But that’s not always the case. You need to find someone who you can trust on both levels: someone who has your best interests at heart and who also knows how to manage your finances effectively.

Finding the Right Financial Advisor

So, how do you find someone who meets both criteria? Start by looking for a financial advisor with a good reputation and proven track record. Check their credentials and ask for references. It’s also important to have open and honest conversations with potential advisors. Ask them about their approach to financial management, their experience, and how they stay updated with the latest financial trends and regulations.

Pay attention to how they communicate with you. A good financial advisor should be transparent, willing to explain their strategies in a way you can understand, and open to answering your questions. They should also be someone you feel comfortable with, as you’ll be sharing personal financial information and discussing your long-term goals.

Conclusion

In conclusion, managing your money effectively requires both types of trust: trust in the person’s intentions and trust in their competence. By ensuring that your financial advisor meets both criteria, you can feel confident that your money is in good hands. Remember, it’s not just about finding someone you like or trust personally; it’s about finding someone who can deliver the results you need. Take the time to evaluate potential advisors carefully, and you’ll be well on your way to achieving your financial goals.

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This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

Is Retirement Possible for You? Here Are 3 Essential Tips

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Can I Retire?

Have you ever wondered if it’s even possible for you to retire? The idea of retirement can seem daunting, but with the right planning, it can be within your reach. Here are three quick tips to help you get started, with the third being the most crucial.

1. Determine Your Dream

The first step in planning for retirement is to determine what your dream is. What do you want to do once you retire? Where do you want to live? This vision is unique to each individual, and there is no right or wrong answer. Whether you dream of traveling the world, spending more time with family, or pursuing a hobby, identifying your goals will give you a clear direction.

2. Figure Out Your Monthly Needs

Next, you need to figure out your monthly financial needs. By the time you retire, most of your significant purchases, such as a home or car, are likely behind you. Therefore, your focus should be on your living expenses, travel plans, and any additional activities you wish to pursue. Understanding your monthly budget will help you plan more effectively and ensure you have enough to cover your desired lifestyle.

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3. Calculate Your Required Investments

The third and most important tip is to calculate how much you need to have invested to generate your desired income. A simple rule of thumb is that for every $1,000 you want in monthly income, you should have $300,000 invested. This calculation provides a basic idea of what you need to aim for to achieve a comfortable retirement. While this is a general guideline, it can help you understand the scale of investments required to support your retirement goals.

Let’s Plan Your Dream Future

Thinking about retiring and wondering if it’s possible? These tips are a great starting point, but everyone’s situation is different. Let’s chat and put together a personalized plan to make your dream future a reality. With careful planning and the right strategy, you can look forward to a fulfilling and financially secure retirement.

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This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

The Biggest Mistake in Your 401(k)?

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The Biggest Mistake in Your 401(k)

When it comes to managing your 401(k), there’s one major mistake many people make: not diversifying properly. While diversification is a commonly discussed investment principle, it’s often misunderstood or overlooked in 401(k) accounts. Many investors believe that simply owning multiple funds means they’re properly diversified. Unfortunately, that’s not quite how it works.

The Importance of True Diversification

Diversification isn’t about the number of funds you own; it’s about the different types of risk those funds cover. When you invest in multiple funds that essentially track similar parts of the market, you’re not truly diversified, even if you hold several different ones. In fact, you might still be exposed to a single economic sector or market trend, leaving your portfolio vulnerable to sudden downturns.

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What Does Proper Diversification Look Like?

Proper diversification involves balancing different “sources of risk.” For instance, consider spreading investments across various asset classes, such as stocks, bonds, real estate, and even international markets. Within these asset classes, it’s also crucial to include both growth and value stocks, small and large companies, and both high-yield and investment-grade bonds. This approach ensures that your portfolio won’t be overly affected if one asset class or sector experiences volatility.

The Role of Regular Portfolio Reviews

To make sure your 401(k) remains diversified, it’s important to periodically review and adjust your investments. Market conditions and economic factors change over time, which means the balance of your portfolio will naturally shift. A regular review, ideally on an annual basis, helps ensure that your investments continue to align with your goals and risk tolerance.

Steps to Avoid Common Diversification Pitfalls

  1. Avoid Overlapping Funds: Carefully review the funds in your 401(k) to ensure they’re not investing in similar assets. For instance, multiple large-cap funds likely won’t add much diversification benefit.
  2. Think Beyond Domestic Stocks: Don’t limit yourself to U.S. stocks alone. Consider adding exposure to international and emerging market stocks, which can enhance diversification and potentially boost returns over the long term.
  3. Include Bonds and Other Asset Classes: While stocks offer growth potential, bonds provide stability and income, making them a valuable addition to a diversified portfolio. Real estate or other alternative investments (if your 401(k) offers them) can also improve balance.
  4. Adjust Based on Age and Goals: The closer you are to retirement, the more you’ll want to shift toward a conservative allocation. Younger investors, on the other hand, might focus more on growth-oriented assets, like stocks, which tend to be riskier but have higher long-term returns.

Final Thoughts

Diversification is essential to building a resilient 401(k) that can weather market fluctuations and support your retirement goals. Remember, it’s not about owning a lot of funds; it’s about balancing different types of risk. Take the time to understand the types of assets in your portfolio and adjust as necessary to achieve true diversification.

Let’s Talk

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

How to Say “No” to Family and Friends Asking for Money—Without Hurting Relationships

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How to Say “No” to Family and Friends Asking for Money — Without Hurting Relationships

When you’ve achieved financial stability, it’s common for family or friends to reach out for help. Sometimes, these requests are genuine and come from a place of need; other times, they may simply reflect different expectations. So how do you offer support without becoming the go-to source for financial assistance?

One effective approach that many wealthy individuals use is setting up a Friends and Family Fund. This fund creates a structured way to help loved ones while establishing financial and emotional boundaries.

Why Use a Friends and Family Fund?

This strategy is helpful because it addresses two scenarios:

  1. Supporting Legitimate Needs: You want to help someone in real need but want to avoid creating dependency.
  2. Avoiding Unnecessary Requests: You want to say no to non-urgent requests without damaging relationships.

The Friends and Family Fund acts like a small charity designated for your loved ones. It allows you to allocate a set amount of money for them, providing help in a structured way. Here’s how to set it up and manage it:

  1. Choose an Amount: Decide on a sum you’re comfortable dedicating to this fund. Consider it part of your personal charitable giving.
  2. Invest Conservatively: Use low-risk investments to ensure the fund grows or maintains itself over time without needing additional contributions.
  3. Appoint a Third-Party Manager: Designate a trustworthy person—such as a financial advisor—to manage the fund and make decisions on requests. This allows you to step back from every financial request, making the process less personal.
  4. Set Funding Criteria: Work with the fund manager to determine guidelines for what constitutes a “legitimate need” (such as medical expenses or emergencies). These standards help ensure that requests are fairly evaluated.
  5. Direct Requests to the Fund: When someone approaches you for money, gently inform them about the fund and explain that they can reach out to the manager. This removes you from the decision-making process and allows the fund’s criteria to determine if the request is granted.

Benefits of the Friends and Family Fund

  1. Reduces Emotional Strain: A third-party manager and criteria reduce the pressure on you to make every financial decision.
  2. Promotes Thoughtful Requests: By introducing a formal process, you encourage loved ones to consider whether their needs are essential.
  3. Preserves Relationships: This neutral approach avoids potential misunderstandings, keeping relationships intact while setting boundaries.
  4. Protects Your Assets: By defining a set amount, you’re able to provide support without endangering your financial security.

Creating a Friends and Family Fund is a compassionate, practical solution to saying “no” without straining relationships. It allows you to support those you care about in a responsible way that maintains both your financial stability and personal boundaries.

Next time you’re faced with a request, let them know about your fund—it may be exactly what they need.

Let’s Talk

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This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

Thinking About Retiring to the Carribean? Here Are Some Things to Keep in Mind.

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by Matthew Tarkington

Retiring to the Caribbean is a dream for many Americans seeking a relaxed lifestyle, warm weather, and beautiful beaches. But how feasible is it to make this dream a reality? Let’s look at some of the factors:

Financial Considerations

One of the primary concerns for retirees is how far their dollar will go in the Caribbean compared to the continental US. Generally, the cost of living in the Caribbean can be lower, but how much varies significantly from island to island.

  • Cost of Eating: Dining out in the Caribbean can be quite affordable. A meal at an inexpensive restaurant might cost around $5-$10, while a three-course meal for two at a mid-range restaurant could be around $30-$40. Local markets offer fresh produce at lower prices than in the US.
  • Housing Costs: Renting or buying property in the Caribbean can be significantly cheaper. As an example, in Belize, you can rent a one-bedroom apartment in the bustling city center for $400 a month and an apartment on the beach for around $3000.

What if I don’t speak Spanish?

If you’re looking for a place where English is the primary language, there are several islands in the Caribbean that fit the bill perfectly.

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One such destination is the island of Roatán, located off the coast of Honduras. English remains the primary language spoken by the locals and visitors as well.

Another excellent choice is the island of San Andrés, which is part of Colombia but culturally distinct. San Andrés has a unique blend of Caribbean and Latin influences, and English is widely spoken due to its historical ties with the British Empire. The island offers a variety of activities, from exploring its beautiful beaches and crystal-clear waters to enjoying its lively music and dance scene.

Lastly, the island of Providencia, also part of Colombia, is a hidden gem in the Caribbean. Like San Andrés, Providencia has a strong English-speaking community. The island is less commercialized, offering a more laid-back and authentic experience.

Making the Move

If you’re considering retiring to the Caribbean, here are a few steps to help you get started:

  1. Research: Look into different Caribbean islands to find the one that best suits your lifestyle and budget. Consider factors like cost of living, healthcare, safety, and community.
  2. Visit: Spend some time on the island you’re considering before making a permanent move. This will give you a feel for the local culture and lifestyle.
  3. Financial Planning: Ensure you have a solid financial plan in place. Consider the cost of living, healthcare, and other financial implications. This is where we can help you

Retiring to the Caribbean can be a wonderful way to enjoy your golden years, but it does require careful consideration and planning. If retiring to the Caribbean is something on your bucket list, let’s talk about what it would take to get you on track.

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This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

“Retire to” vs. “Retire from”

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by Franklin J. Parker, CFA

As an advisor, I see my role as one of counseling and execution, but not judgement. Here is what I mean: if my client wants to retire to a treehouse in the mountains of Idaho, my job is to help her retire to a treehouse in the mountains of Idaho, not to judge whether or not that is a worthy goal.

I am, however, going to break with my usual ecumenicism and offer some of my experience as a thoughtful observer.

Retire from…

There are, in my experience, two views of retirement. The first is the classic image: I cease working one day, have a party, get a watch, and retire from work. Did you hear it? That’s the “retire from” view (“retire from work”).

The problem with retiring from something is that it sees retirement as a destination, not as a path. Most couples will spend about 30 years in retirement — that is a long time to spend at a destination!

Additionally, many people derive a lot of purpose and meaning from work, and retiring from work often means retiring from purpose and meaning.

I have seen clients who retired from purpose and meaning. It yields a difficult stretch of years, often populated with bouts of depression and loneliness.

Which brings us to the second view.

Retire to…

“Your purpose in life is to find purpose
and to give your whole heart and soul to it.”

Buddha

Retirement is a journey, with a lifecycle all its own, and it requires vision, creativity, planning, and acceptance.

I have found that people do much, much better when they retire to something. Something meaningful, something that gets you up on Monday morning, something exciting. That something is different for everybody, of course, but without that something retirement can be a long slog, believe it or not!

Retiring to something meaningful keeps you active, it keeps you engaged. In my experience, folks who retire to a passion, love, or purpose do considerably better than folks who only retire from work.

Your Life

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This is, of course, only a casual observation. Even so, if you find yourself nearing retirement, I would encourage you to think about what it is you would like to retire to, rather than thinking about retirement as only a can.

What’s more, this is your life, and will continue to advocate that you live it intentionally — however you choose to live, don’t do it by accident! Find your “why” and see retirement as your opportunity to pursue it whole-heartedly!

Now, get out there and live well.

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Three Rules for Retirement Spending

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by Franklin J. Parker, CFA

I am surprised how often we advise clients to spend more money in their retirement.

It is, of course, a wonderful problem to have, but I have found that people often feel guilty — not about spending the money they had always planned — but guilt about enjoying their resources. I think this is because many people draw an emotional equivalency between enjoyment and irresponsibility.

I want to disentagle those two because, while enjoyment can be done irresponsibly, you are also allowed to enjoy the fruits of your years of labor, discipline, and savings. After all, if you don’t enjoy your savings, someone else will enjoy it for you!

I have, therefore, three simple rules for spending in retirement — but before we get to those, let’s talk about a key idea underpinning those rules.

Your Resources Serve a Purpose

“Money is a good servant,
but a bad master.”

Francis Bacon

Ultimately, your resources — your money, your health, your social standing, etc — should serve you, not the other way round. While this seems obvious, it is not so obvious in practice. Because in order for your resources to serve you, you must have some vision of what it is you want to accomplish with them. In short, you must have a goal. Absent that, we are left with no other objective than: “make more money.” But to what end? And how do we know when we’ve accomplished that objective?

What’s worse, that makes enjoyment of those resources difficult. If the objective is to see a bigger number on a statement, withdrawals certainly work against that.

Of course, that isn’t to say that enjoyment is the purpose of retirement! I simply use “enjoyment” as a placeholder for a life well lived. Living the best possible version of your life should be the point. Your resources should serve that objective. Do not sacrifice a well-lived life for bigger numbers on a piece of paper you receive every month.

Do not sacrifice a well-lived life
for bigger numbers on a monthly statement.

The Three Rules

With that in mind, we have three rules for retirement spending. Only three, but in combination they are quite powerful.

Rule #1: Spend Intentionally.

Whatever you spend, we want to make sure it isn’t by accident.

For example, maybe shopping is an enjoyable experience for you, and that is perfectly okay. However, accidentally ordering $100,000 worth of stuff on Amazon is not a good way to enjoy your resources. If you do it with intention, not by accident, that is another matter — then you are enjoying the experience.

Doing things without intention robs you of enjoyment. That’s why our first rule is intentionality.

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Rule #2: Spend Meaningfully.

Whenever you spend, spend on meaningful things, experiences, causes, or people.

When you spend retirement funds, ensure that the spending is building meaning into your life. Meaning is had from things that help you accomplish objectives (hobbies, dreams, fun), experiences with loved ones that build memories and legacy, causes that you find important and impactful, and people that you care about.

Paying for an annual family vacation, for example, is a way to create experiences with loved ones that they will remember forever. Watching your loved ones enjoy your resources is something many find very meaningful.

Rule #3: Spend with a Budget.

Of course, whatever we do, it needs to be budgeted.

Budgets do two things for us. First, they allow us, as your advisors, to organize your resources to give you the best chance of doing these things on an ongoing basis. We can discuss what your resources can and cannot support, and how to best make it all happen.

There is a more important reason, however. Budgets offer freedom from guilt. When you have confidence that these funds are sustainable and are not undermining your future needs, you can spend the funds freely and without hesitation. Freedom from that guilt and hesitation allows you to indulge fully in the enjoyment of it.

Spend with intention, spend on meaning, and spend with a budget. Those are the only three spending rules you need in retirement. Of course, the last one requires quite a bit of work with numbers — not just in setting the budget, but also in organizing your resources to meet it! But, that is the value of working with an advisor: your job is to dream, our job is to work out the details.

So, there is really only one question left: what does a life well lived look like to you?

What does your best life look like?

Let’s Talk.

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This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

Achieving Goals While Making an Impact

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Impact investing has grown considerably over the past several years. According to the Global Impact Investing Network, the total size of the impact investing market has grown by about 14% per year since 2015. It is clear that many investors are interested in allocating at least some of their wealth toward investments which bring about social good as well as a financial return on investment.

But when you have financial goals to achieve, how much return should you give up to pursue an impact investing mandate?

This was the subject of Franklin Parker’s recent paper published in the Journal of Impact and ESG Investing. Striking the right balance between achieving financial outcomes and achieving social outcomes is not as straightforward as one might expect, and investors of all types would do well to follow a basic framework for balancing these tradeoffs.

Understand Your Goals

The first step is to understand and articulate your objectives. Is achieving the financial or social goal more important? If social outcomes are the most important objective, it is likely that philanthropy is a better use for some or all of the funds. Parker shows that when you value the social outcome more than your financial goal, you are willing to accept a complete loss on your investment–effectively making you a philanthropist rather than an impact investor.

That is not to say that outright giving is bad! Rather, we need to understand how to direct your capital to best accomplish your objective–whether that be philanthropy, impact investing, or something else entirely.

How Important is the Impact Mandate to You?

When the financial goal is more important than the social outcome (but you’d still like to have both), the conversation should progress to an understanding of your willingness to give up one goal for the other. Put simply: how much probability of achieving your financial goal are you willing to give up to incorporate the impact mandate? Are you willing to move from a 90% chance of attaining your financial goal to an 85% chance? What about moving from a 90% chance to a 60% chance?

The answer to these questions will help your advisor understand how much you value the impact mandate relative to your financial goal, and it becomes a simple matter to calculate the maximum return drag you are willing to accept. In the end, this yields impact investment plans that you can stick with for the long haul.

Things Change, So Do People

Another interesting conclusion of this research is that your willingness to sacrifice return is not constant through time. There are times when you are more willing and less willing to sacrifice return for an impact mandate. You tend to be more willing to sacrifice returns for an impact mandate in the face of highly volatile markets, for example.

The importance of the financial goal matters too. You tend to be less willing to incorporate an impact mandate for more important financial goals. This could be a source of contention for wealth intended to support multiple generations. The older generation, for example, could feel that the family’s current wealth as more than enough to support their own needs, giving them more psychological freedom to sacrifice returns. The younger generation may not feel quite so confident.

Location, Location, Location

Account types matter, too! Whereas personal accounts are generally most appropriate for impact investing mandates, many trusts, charities, foundations, pensions, and retirement plans may wish to pursue such mandates, as well. Despite this desire, impact investing cannot be pursued with equal vigor across every account type! There are various legal nuances for assets, based on their location, and these govern how or whether you can pursue an impact investment mandate.

Knowledgeable Help

In the end, an advisor who understands your goals–both ethical and financial–is key to helping you implement an effective and efficient impact investment program. At Directional, we are eager to help you navigate these waters.

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