Your Essential Life

In our last post, we discussed the concept of Essential Wealth.

Now, your Essential Wealth is an enabler to your Essential Life.

What is your Essential Life?  It is Your Health, Your Career, and Your Calling.  It is your lifestyle.

Your Essential Life has several factors that we have various degrees of control over.

Take Life Span for instance. There are genetic elements of our life span that we don't control, but eating a proper diet and exercising regularly and making good choices regarding smoking and alcohol consumption will lead to a longer life.

Earnings has several elements that influence it.

The bottom line is that you take advantage of what you do have control over and make the most out of what you want to do with the resources you have available.  For some, that may mean a sabbatical or going on a mission and bypassing income in the short-term.  For others, it involves the risk of starting your own business or caring for an aging parent or special needs child.  In any case, if we can take care of your health, allow you to keep learning and growing in your career, and position you for whatever your calling is whenever it shows up, that you can do that through your enablement with Essential Wealth and an Essential Portfolio.

Now that we have set the table, we will begin dissecting the make-up of an essential portfolio.

Defining Essential Wealth

There are many things in life that is easier for me to explain and understand using an equation.

One of my favorites is:

Perception - Reality = Lack of communication

The definition of Essential Wealth offers us that as well and it is at a level that transcends your unique definition of wealth.

Essential Wealth = Time x Money x Experiences x Relationships

If any of these factors equals 0, then you likely don't have Essential Wealth.  To build and maximize Essential Wealth,  it is important to understand the trade offs among these factors.  For example, if you are so busy working that you don't have as much as you like doing things with your family, your Essential Wealth is likely not at its peak value.

What I like to do with my clients is understand what the "peak" value is for each of these factors.  Time may be going part-time or retiring at a certain age to maximize the other factors.  Experiences could be taking your kids and grandkids on a cruise, or it may be buying a lake house.

Money is the vehicle that will deliver on time and experiences.  The emotion that comes with money typically lead to negative views - worry, regret, greed,  and fear - to name some.  While money is important, it is also important how money will contribute the most to your Essential Wealth.

When we understand how we can define and maximize Essential Wealth, it allows us to define our Essential Life and build an Essential Portfolio.  We will write about those factors next.

The Essential Portfolio is an Essential Building Block

Recently, I have finished reading Essentialism:  The Disciplined Pursuit of Less.  I highly recommend it.


The story is one that easily transcends into my world of wealth management and a story I will be sharing over the coming days.

Your Essential Portfolio is necessary for you to have Essential Wealth for your family and for you to have an essential life.

The Essential Portfolio focuses on four things:  Behavior, Expense, Risk, and Taxes.  We will go in depth on all four.

Essential Wealth examines the trade-offs among time, money, and experiences.  We will analyze all 3 and their relationship with one another.  Probably more importantly, is how time, money, and experiences are invested and maximized with people that matter in relationships that matter.

Your Essential Life is about your career, your health, and your calling.  Some of these life events we can control and create the path - sometimes a path will be created for us.  We will look at this.

Then, we will show how the Essential Portfolio, Essential Wealth, and Essential Life build upon each other.

Finally, we will compare the ingredients to an Essential Portfolio and a Non-Essential Portfolio.



I look forward to sharing this with you over the coming days.

How is your Wealth Manager talking to you about risk?

I find the whole risk conversation fascinating.  It is part art and part science.  It brings your left brain and right brain into conflict.  Portfolio Risk or "Downside Risk" is broker-ese for "someday you will experience this".

Risk is really getting a fix on:
1) What risk do you need
2) What risk are you willing to take
3) What risks are worth taking?

The Risk You Need is typically found in some sort of financial planning software to determine what is the risk necessary to achieve your goals.

The Risk You are Willing To Take is found in several new tools like Riskalyze where you are looking at stuff independently.  These software programs do have their flaws (timeframe being the biggest one), but it reminds me of going to the optometrist and giving me an objective calibration.  With my clients, I like to track how these answers change over time, given current market conditions and use that to play devil's advocate if I see a significant change.

Risks worth taking are maintaining your asset allocation, but potentially changing what you own (I do this based on what I read from Riverfront Investment Group, Barry Ritholtz, and Meb Faber).  Your capital market assumptions are another important ingredient.

I consider these questions to be lighthouses for my clients that generate three lines of bearing and it allows me to get a decent fix on their position.

How do you think of risk?

Market Corrections Analysis

A Fascinating Guide to Market Corrections in context of today

What I am reading

Indexes win 75% of the time (at least)

First Quadrant: Managing Taxable Assets

More from First Quadrant on Taxable Investing

Diversification through the lens of the VIX - fascinating read

SSA - Widows are not getting what they are entitled to

Roughly one-third of spouses ages 70 and older are not getting the maximum Social Security payouts they are entitled to because they are not being told by the government they are eligible, the Social Security Administration Office of Inspector General said in a recent report.

The shortfall amounts to an average of $2,337 for the widows and widowers not receiving all the money they are eligible to receive from SSA.

SSA’s internal watchdog noted that Social Security fails to identify and notify spouses when they become eligible for increased benefits at 70 because the agency is unaware of the spouses’ eligibility for retirement benefits when they applied for spousal benefits.

“Although SSA sends notices to widows and widowers who may be eligible for higher retirement benefits at full retirement age and age 70, it does not provide notices to spouses who may be eligible for higher retirement benefits based on their own earnings,” the report said.

SSA’s laxity has led to 26,033 of the 83,436 widows and widowers eligible for maximum benefits not receiving the biggest checks they are entitled to, according to the study.

The Inspector General’s office said it asked Social Security six years ago to send out letters to spouses telling them they can get higher payouts, but the agency declined because, it said, it didn’t have enough workers for the task.

Asset Allocation is unavoidable

Source: Capital Spectator