[This is the first in an occasional series of actual client communications that we think will prove valuable to a wider audience. We hope you find them interesting and valuable. — Peter and the PWJ Team]
The Short Run vs. The Long Run
There’s a significant and very important aspect of building wealth that doesn’t show up in our performance numbers, as the full results only show up over the very long term (20-30-40 years). In fact, in the short run, some smart moves have a temporary depressive effect on portfolio value.
One obvious example is Roth conversions. The aim is to trade short term pain for long term gain. In converting $1,000,000, for example, one might pay $400,000 in taxes, resulting in a noticeable reduction in portfolio value. But in the longer run, such a move may mean an extra $400,000, $800,000 or more over and above the after tax return that would have been earned otherwise.
Similarly, other planning moves, such as tax loss harvesting, can look like backtracking in the short run, yet add to wealth over the long run. We have very strong views on the importance of estate planning and mentoring the next generation, which also have no visible impact in the present, but can make all the difference down the road.
We’re not saying that portfolio performance isn’t important; it absolutely is. What we’re asking you to do is consider that there are complementary pieces of overall wealth management that present opportunities at least as great as portfolio performance, perhaps more so. At the same time, a number of them are more directly under our control. We actively pursue those aspects as well, and they have a high likelihood of enhancing your financial picture in the long run.
Our goal isn’t to look good, our goal is to be good. You can count on us to be transparent and honest with you. In addition to your focus on portfolio growth, we encourage you to take into account the bigger picture, and keep your eye on all of the components of successful wealth management. Those include not only performance, but also risk management, tax strategies, personal capital, estate planning, and the longer run picture. Over time, we expect you will find greater satisfaction and more opportunities in these areas than you may currently imagine.