A Paradigm Shift: The Savings Portfolio

I really liked these quotes from Abnormal Returns which cite a blog post from The Zikomo Letter who riffs off my idea of the “savings portfolio”:

The second post at The Zikomo Letter makes a great point about the status of most of us investors, nee savers. The fact is that we aren’t traditional investors in the classic sense, we are in fact savers who should be focusing on generating real, risk-adjusted returns on our savings. The problem is that:

You are not an investor. You are, perhaps, an over-leveraged trader with unacknowledged cognitive biases and poor risk management.

That is okay however. There is much more to life than investing. The point being that we can generate “returns” much more easily on other important aspects of our lives than we ever can in the financial markets. There is a reason that professional money managers have a difficult time adding value over and above the fees they charge. The challenge for many is making this shift towards a more holistic view of their lives, finances included. TZL notes a simple nomenclature change can help:

You are not an investor, you are a saver. And that is good, because you are not very well positioned to be a successful investor, but you are well positioned to be a great saver.

This is so important.  I think this is a paradigm shift in the way people approach their portfolios.  The idea of investing is sold to people to give them the impression they’re actually doing something much sexier than what they probably should be doing.

Investing sounds sexy.  Who wants to save?  Saving is boring, slow, bleh.  But investing is awesome.  It’s high performance, sexy, you know, Warren Buffett does it!  It’s like buying a Ferrari.  It looks sexy, it goes fast and it’s expensive.  A Ferrari is the “investing” equivalent of a hedge fund.  The problem is, you’ve got your kids strapped in the back (maybe even in the trunk if you have a big family) and you probably have no idea whether the driver can actually control the vehicle (because you’re obviously not driving when you hire someone else to take care of your portfolio).

The reality is that you’re not investing in a secondary market.  You’re allocating your savings.  It’s not sexy.  It’s not fast, sleek and it shouldn’t be expensive.  It’s like driving a Honda Accord.  It’s not the Ferrari, but it will get you from point A to point B and it will do it much safer, far less expensively and best of all, you can operate it entirely on your own.  But the investment business doesn’t want you in a Honda Accord.  They want to sell you the Ferrari because, well, it’s more expensive.  9 times out of 10 you should probably leave the Ferrari in the garage and just take the Honda Accord….

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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