Financial Opinion and Insights

Investors Get No Free Lunch!

Jim Lorenzen, CFP®

Jim Lorenzen, CFP®

Investors love predictability and will take stable returns over unpredictable returns every time; yet, intuitively most people understand that no ideal investment exists that is liquid, has a stable principal value, and generates returns sufficient to stay ahead of the combined impact of inflation and income taxes.

Once the fantasy of the ideal investment dissolves, most people begin to understand that building a sound portfolio strategy is all about compromise.  It IS possible to get stable, predictable returns from some investments, but the stability is purchased at a price of lower returns and most often with a loss of purchasing power over time.   Other investments will provide an expectation for long-term growth, but necessarily entail the assumption of volatility.

It’s human nature to seek constants in a world of uncertainty.  One constant is people prefer stability over uncertainty.  The good news is that the longer an investor’s time horizon extends, the more opportunities there are for good and bad years to offset one another, producing an average return that converges toward the long-term growth path of the asset class

Step #1 begins with understanding the purpose of your money.   Most people like to think of their goals; but goals can change or even abandoned.   For example, ‘retirement in ten years’ may be a fine goal; but you need to know the purpose of money first – that’s something that’s less likely to change.   

A client who tells me, “I want to make sure I don’t have to ever reduce my lifestyle” or “I want to be free from worry in my old age” is giving purpose to their investing.  All goals can then be chosen within the framework of that purpose. 

It’s helpful to understand your purpose; then you can choose your goals, providing inflation and tax assumptions that can be expressed in both today’s dollars as well as in future dollars.   After that, it’s time to prioritize.  Those of you who are IFG clients have experienced this process and probably even experimented with alternative scenarios in the planning platform. 

Your purpose will likely not change – and it provides the framework for the decisions you’ll have to make.




Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER™ and in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained herein should be regarded as tax or legal advice and the reader is urged to seek competent counsel to address those issues.   The above represents the author’s opinion and should not be regarded as investment advice which is provided only to IFG clients upon completion of a formal financial and investment plan.   For questions or comments, you can reach Jim at 805.265.5416 or through the IFG website, www.indfin.com.