Investing 101 — Managed Discretionary Accounts (MDAs)
Money is something we all grapple with, mostly in private.
It really is the 'oil in the engine' of everyday life, and without it, life grinds to a halt. But just because the engine has oil isn't to say that the car always drives in the right direction. Earning, spending, saving and investing are all financial concepts and emotional triggers for the uninitiated.
Dare to speak its name
Money. It really is the Lord Voldemort of topics; 'the one that cannot be named' — feared by most and mentioned by few.
For many people, it's uncomfortable to discuss socially and rarely (unless prompted), even discussed regularly with our partners, parents, and our children.
While the reasons for its avoidance are many, they usually come down to the fact that money is both analytically complex and emotionally connected. Either reason alone is enough to avoid a conversation about money matters. Any conversation that promises to include complicated financial principles and emotions is a hard act to sell.
We believe the biggest challenges are the ones with both financial and emotional consequences.
We begin by distinguishing ‘Rich’ from ‘Wealthy’
Being Rich is having ‘more’. The push for more can feel like a never-ending treadmill of ongoing hard work and less happiness. In contrast, Wealth is 'funded contentment' and having ‘enough’.
How much is ‘enough’ is the second biggest question we’re asked.
- Being Rich is having ‘more’
- Being Wealthy, by contrast, is having ‘enough’
Another way to see this is wealth is 'funded contentment'. The catch is wealth, truly defined, is only achievable in the context of a life in which purpose and practice are calibrated. In isolation, neither deep thinking nor long checklists of financial things to do, are up to the task – they must work together.
The difference among people we meet is dwarfed by their similarities.
We're all working towards the big question
The biggest question of all is, “Am I going to be okay?” While not specifically about money, it does sit in its shadow.
We believe three factors drive good investment comes
1. The first is our own behavior – unquestionably the most important of the three.
The human brain is hardwired to make an array of cognitive and emotional errors – the classic example being when the investment markets crash and investors sell in panic locking in their losses and later on missing on a rebound.
- The thing is we're not rational, we're just human.
- The importance of our own behaviour in directing our money lives as distinct from a familiarity with fancy finance concepts is a key theme in your journey.
After behaviour, it's the content of one's overall portfolio that allows us to manage risks and grow our capital.
2. Portfolio management focuses on a smaller number of more impactful decisions.
The specific parts that go into the portfolios – the stocks, bonds, and investments that grab the eye (and quicken the pulse rate) are important drivers of financial success, but only when understood in the proper context.
3. The tactics and simplifying the tools to use.
We aim to set reasonable investment expectations for how to navigate the market's ride, both intellectually and emotionally. Simplification is the smart approach toward officially managing our expectations.
- In general, terms met expectations lead to temporary happiness, and unmet ones lead to temporary sadness.
- The human mind is wired to avoid loss more than to achieve gains, so minimising regret is more important in this process and maximising future upscale.
Ultimately we have to acknowledge and navigate the eternal tension between having enough and wanting more. Both are legitimate evolutionary instincts, but in our minds, they sit together uncomfortably revealing a tenuous relationship between our current and future selves – who we are now and who we will become.
Review your journey regularly
You need to review your position whenever your circumstances or attitudes change.
- No matter how well plans are set and executed, there will always be a need to adapt.
- And even when things go well, progress itself generates change.
The need or opportunity to recalibrate and continue to redirect your own investing journey happens over and over again, but never the exact same way.
You never step in the same river twice, to quote Heraclitus, so coming to terms with the constant need for adapting and understanding your own innate money behaviors and triggers, is critical to success in your investment journey and to learn which of our many, often contradictory, feelings and plans, we might trust.
Being present in the moment and making progress, together make a meaningful life, and funded contentment.
Sapience Financial works with a managed discretionary account (MDA) structure to produce risk-adjusted returns for our clients, both individuals and SMSF's – currently by invitation only.
How we can help
Investing is a combination of financial and emotional decisions to achieve a future result. It’s really a more difficult personal process to manage than people like to admit because much of our success is based upon managing our personal behaviours and what we do not do. Investing is a core tool for creating wealth as is protecting the means by which wealth is created.
Contact us for a confidential chat about your needs.