PRISM: Prioritizing Your Goals

Hello AAII Members,

In the April issue of the AAII Journal, Charles Rotblut wrote an article, "A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals," which focused in on creating a solid wealth-building plan for your short-term goals. Personally, I found this a great read as I am in the active process of buying my first home and building a strong investment portfolio to fund short-term goals.

When it comes to planning for goals like saving for a down payment on a house or a dream vacation, several factors come into play. I'm particularly interested in hearing your perspectives on the key factors you prioritize in this allocation process, including market volatility, inflation, and savings methods.

Considerations for Allocating Resources:

1. Market Volatility: How do you assess and manage the impact of market volatility on your short-term goals? Do you lean towards more conservative investments to mitigate risk, or do you embrace volatility as an opportunity for potential higher returns?
2. Inflation: Inflation erodes the purchasing power of savings over time. How do you account for inflation when planning for short-term goals? Do you actively seek out investments or savings methods that offer protection against inflation?
3. Savings Methods: What savings methods have you found most effective for achieving your short-term goals? Are you utilizing high-yield savings accounts, certificates of deposit (CDs), or other financial instruments? How do you balance liquidity and returns when selecting savings methods?

Alignment with Current Investment Strategy: Now, let's explore how these factors align with or challenge your current investment strategy:

• Do your short-term goals influence your overall investment strategy?
• How do you reconcile the need for liquidity with the desire for returns when investing for short-term goals?
• Have you encountered any challenges or unexpected outcomes in aligning your investment strategy with your short-term goals?

For those who haven't explored this framework yet, I encourage you to consider its principles and lessons as we discuss short-term goal allocation. The PRISM approach emphasizes a systematic and comprehensive approach to wealth-building, encompassing goal identification, risk assessment, investment selection and progress monitoring.

Looking forward to your thoughts!

Jenna, I guess I'm just too ignorant to understand the benefits of such complexity in managing my personal finances. I've always tried to maintain a simple focus on the long-term growth of my assets, assuming that everything else (what PRISM seems to refer to as "short-term goals") will just take care of itself. Because of my perpetual long-term focus, when I needed money to make a down payment on the house, it was there. When I needed money to pay for the children's education expenses, it was there. When I want to take a vacation, the money is there. I don't normally try to earmark particular assets to particular expenses. That seems to me to be a fruitless, unnecessarily cumbersome exercise.

All my adult life, my long-term focus has led me to maintain a 100% allocation to equities (or as close thereto as possible). I've maintained that allocation through about 12 years of retirement so far, and my assets have continued their general growth throughout that period, all the while providing the funds I need to live in relative comfort. I want that asset growth to continue until I assume room temperature. Thus, anything you might call a "short-term goal" will have to be met without disrupting my long-term focus.

In answer to your particular questions (I apologize in advance for repeating myself):

How do you assess and manage the impact of market volatility on your short-term goals?

Jenna, you ask tough questions. I don't generally assess or manage the impact of volatility; I embrace volatility and try to make positive use of it when I can. 

Nevertheless, when the market is down, I instinctively tend to tighten my belt. I might put off a vacation, vehicle purchase, or other expense if I can. For things that can't be put off, there are multiple avenues to pay for them. Strategic borrowing, earned income, dividends, and strategic asset sales can all provide cash for necessities. 

I'm not generally a fan of debt, but I took out a HELOC (Home Equity Line of Credit) to remodel my house. I could pay for the work outright, but I think it makes more sense to leave my money in the market. Although the current variable rate on my HELOC is approaching 9%, the interest expense provides a tax write-off, so the net cost is a bit lower than the nominal rate. My historical rate of asset growth in the market is well above 9%, so for now, I think it makes sense to maintain the HELOC. If the rate gets too high, I can always use qualified dividends and strategic asset sales to pay it off. I keep my debt/asset ratio very small, so paying it off in short order would not be a problem.

Because of my general discomfort with debt, I've resolved to pay $1,000 per month toward principal until the loan is paid off. The remodeling project will probably be continuing for another year or so, so I will also be drawing on it as needed. Once the project is done, I can roll the HELOC over into a fixed-interest loan if I want to.

Do you lean towards more conservative investments to mitigate risk, or do you embrace volatility as an opportunity for potential higher returns?

Volatility is wonderful! It does indeed present opportunities to buy at enhanced discounts and sell at inflated premiums. I'm not convinced that what most people regard as "conservative" investments do anything to mitigate risk. For example, I regard fixed-income investments as extremely risky. They practically guarantee attenuated returns in the long run. I want to buy and hold stocks that will grow like crazy over the long haul. If they happen to be more volatile in the process, who cares?

Inflation erodes the purchasing power of savings over time. How do you account for inflation when planning for short-term goals? Do you actively seek out investments or savings methods that offer protection against inflation?

In the long run, stocks provide an excellent hedge against inflation. But I can't think of an example when I made an investment decision that was specifically based on current or expected future inflation. I think maintaining a long-term focus puts you in a position to weather whatever storms come your way, including inflation. 

Savings Methods: What savings methods have you found most effective for achieving your short-term goals? Are you utilizing high-yield savings accounts, certificates of deposit (CDs), or other financial instruments? How do you balance liquidity and returns when selecting savings methods?

I think the best method for "achieving your short-term goals" is to save and invest for the long run. Over the course of my life, any money I've saved has found its way into the stock market as soon as possible. Stocks are highly liquid and provide superior long-term returns. Why would I tie up money in a CD or bond at lower long-term rates?

Do your short-term goals influence your overall investment strategy?

NO! Why run a marathon wearing ankle weights!?

How do you reconcile the need for liquidity with the desire for returns when investing for short-term goals?

My investing for all goals is long-term investing. Again, stocks are highly liquid. Even if circumstances forced me to sell some stocks in a down market, I could do so in a manner that minimized or reduced my taxes. If your portfolio is large enough (and it will likely become large enough if you spend a lifetime focusing solely on the long run), selling in a down market is not the big deal it's so often made out to be.

Have you encountered any challenges or unexpected outcomes in aligning your investment strategy with your short-term goals?

I don't align my investment strategy with short-term goals. Again, I focus on the long run so that the short run takes care of itself. 

Hello AAII Members,

In the April issue of the AAII Journal, Charles Rotblut wrote an article, "A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals," which focused in on creating a solid wealth-building plan for your short-term goals. Personally, I found this a great read as I am in the active process of buying my first home and building a strong investment portfolio to fund short-term goals.

When it comes to planning for goals like saving for a down payment on a house or a dream vacation, several factors come into play. I'm particularly interested in hearing your perspectives on the key factors you prioritize in this allocation process, including market volatility, inflation, and savings methods.

Considerations for Allocating Resources:

1. Market Volatility: How do you assess and manage the impact of market volatility on your short-term goals? Do you lean towards more conservative investments to mitigate risk, or do you embrace volatility as an opportunity for potential higher returns?
2. Inflation: Inflation erodes the purchasing power of savings over time. How do you account for inflation when planning for short-term goals? Do you actively seek out investments or savings methods that offer protection against inflation?
3. Savings Methods: What savings methods have you found most effective for achieving your short-term goals? Are you utilizing high-yield savings accounts, certificates of deposit (CDs), or other financial instruments? How do you balance liquidity and returns when selecting savings methods?

Alignment with Current Investment Strategy: Now, let's explore how these factors align with or challenge your current investment strategy:

• Do your short-term goals influence your overall investment strategy?
• How do you reconcile the need for liquidity with the desire for returns when investing for short-term goals?
• Have you encountered any challenges or unexpected outcomes in aligning your investment strategy with your short-term goals?

For those who haven't explored this framework yet, I encourage you to consider its principles and lessons as we discuss short-term goal allocation. The PRISM approach emphasizes a systematic and comprehensive approach to wealth-building, encompassing goal identification, risk assessment, investment selection and progress monitoring.

Looking forward to your thoughts!

Hi Robert,

My sense is you've already incorporated some of the virtues of the PRISM system intuitively or subconciously, and therefore it's not too beneficial to go through the step by step process including all of the documention. I'm of a like mind to you, yet I don't think the system is too complex. I think it's beneficial for those who may not be as practiced.

I think it's good to get those who've not thought about these questions that Jenna presents, to consider them.

Jim

------------------------------
JAMES ISAACSON

Original Message:
Sent: 04-17-2024 06:03
From: ROBERT ADAMS
Subject: A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals

Jenna, I guess I'm just too ignorant to understand the benefits of such complexity in managing my personal finances. I've always tried to maintain a simple focus on the long-term growth of my assets, assuming that everything else (what PRISM seems to refer to as "short-term goals") will just take care of itself. Because of my perpetual long-term focus, when I needed money to make a down payment on the house, it was there. When I needed money to pay for the children's education expenses, it was there. When I want to take a vacation, the money is there. I don't normally try to earmark particular assets to particular expenses. That seems to me to be a fruitless, unnecessarily cumbersome exercise.

All my adult life, my long-term focus has led me to maintain a 100% allocation to equities (or as close thereto as possible). I've maintained that allocation through about 12 years of retirement so far, and my assets have continued their general growth throughout that period, all the while providing the funds I need to live in relative comfort. I want that asset growth to continue until I assume room temperature. Thus, anything you might call a "short-term goal" will have to be met without disrupting my long-term focus.

In answer to your particular questions (I apologize in advance for repeating myself):

How do you assess and manage the impact of market volatility on your short-term goals?

Jenna, you ask tough questions. I don't generally assess or manage the impact of volatility; I embrace volatility and try to make positive use of it when I can. 

Nevertheless, when the market is down, I instinctively tend to tighten my belt. I might put off a vacation, vehicle purchase, or other expense if I can. For things that can't be put off, there are multiple avenues to pay for them. Strategic borrowing, earned income, dividends, and strategic asset sales can all provide cash for necessities. 

I'm not generally a fan of debt, but I took out a HELOC (Home Equity Line of Credit) to remodel my house. I could pay for the work outright, but I think it makes more sense to leave my money in the market. Although the current variable rate on my HELOC is approaching 9%, the interest expense provides a tax write-off, so the net cost is a bit lower than the nominal rate. My historical rate of asset growth in the market is well above 9%, so for now, I think it makes sense to maintain the HELOC. If the rate gets too high, I can always use qualified dividends and strategic asset sales to pay it off. I keep my debt/asset ratio very small, so paying it off in short order would not be a problem.

Because of my general discomfort with debt, I've resolved to pay $1,000 per month toward principal until the loan is paid off. The remodeling project will probably be continuing for another year or so, so I will also be drawing on it as needed. Once the project is done, I can roll the HELOC over into a fixed-interest loan if I want to.

Do you lean towards more conservative investments to mitigate risk, or do you embrace volatility as an opportunity for potential higher returns?

Volatility is wonderful! It does indeed present opportunities to buy at enhanced discounts and sell at inflated premiums. I'm not convinced that what most people regard as "conservative" investments do anything to mitigate risk. For example, I regard fixed-income investments as extremely risky. They practically guarantee attenuated returns in the long run. I want to buy and hold stocks that will grow like crazy over the long haul. If they happen to be more volatile in the process, who cares?

Inflation erodes the purchasing power of savings over time. How do you account for inflation when planning for short-term goals? Do you actively seek out investments or savings methods that offer protection against inflation?

In the long run, stocks provide an excellent hedge against inflation. But I can't think of an example when I made an investment decision that was specifically based on current or expected future inflation. I think maintaining a long-term focus puts you in a position to weather whatever storms come your way, including inflation. 

Savings Methods: What savings methods have you found most effective for achieving your short-term goals? Are you utilizing high-yield savings accounts, certificates of deposit (CDs), or other financial instruments? How do you balance liquidity and returns when selecting savings methods?

I think the best method for "achieving your short-term goals" is to save and invest for the long run. Over the course of my life, any money I've saved has found its way into the stock market as soon as possible. Stocks are highly liquid and provide superior long-term returns. Why would I tie up money in a CD or bond at lower long-term rates?

Do your short-term goals influence your overall investment strategy?

NO! Why run a marathon wearing ankle weights!?

How do you reconcile the need for liquidity with the desire for returns when investing for short-term goals?

My investing for all goals is long-term investing. Again, stocks are highly liquid. Even if circumstances forced me to sell some stocks in a down market, I could do so in a manner that minimized or reduced my taxes. If your portfolio is large enough (and it will likely become large enough if you spend a lifetime focusing solely on the long run), selling in a down market is not the big deal it's so often made out to be.

Have you encountered any challenges or unexpected outcomes in aligning your investment strategy with your short-term goals?

I don't align my investment strategy with short-term goals. Again, I focus on the long run so that the short run takes care of itself. 

------------------------------
Rob Adams

Original Message:
Sent: 04-15-2024 13:51
From: Jenna Brashear
Subject: A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals

Hello AAII Members,

In the April issue of the AAII Journal, Charles Rotblut wrote an article, "A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals," which focused in on creating a solid wealth-building plan for your short-term goals. Personally, I found this a great read as I am in the active process of buying my first home and building a strong investment portfolio to fund short-term goals.

When it comes to planning for goals like saving for a down payment on a house or a dream vacation, several factors come into play. I'm particularly interested in hearing your perspectives on the key factors you prioritize in this allocation process, including market volatility, inflation, and savings methods.

Considerations for Allocating Resources:

1. Market Volatility: How do you assess and manage the impact of market volatility on your short-term goals? Do you lean towards more conservative investments to mitigate risk, or do you embrace volatility as an opportunity for potential higher returns?
2. Inflation: Inflation erodes the purchasing power of savings over time. How do you account for inflation when planning for short-term goals? Do you actively seek out investments or savings methods that offer protection against inflation?
3. Savings Methods: What savings methods have you found most effective for achieving your short-term goals? Are you utilizing high-yield savings accounts, certificates of deposit (CDs), or other financial instruments? How do you balance liquidity and returns when selecting savings methods?

Alignment with Current Investment Strategy: Now, let's explore how these factors align with or challenge your current investment strategy:

• Do your short-term goals influence your overall investment strategy?
• How do you reconcile the need for liquidity with the desire for returns when investing for short-term goals?
• Have you encountered any challenges or unexpected outcomes in aligning your investment strategy with your short-term goals?

For those who haven't explored this framework yet, I encourage you to consider its principles and lessons as we discuss short-term goal allocation. The PRISM approach emphasizes a systematic and comprehensive approach to wealth-building, encompassing goal identification, risk assessment, investment selection and progress monitoring.

Looking forward to your thoughts!

------------------------------
Jenna Brashear
AAII Community Manager
Chicago, IL
------------------------------

James, could you be a little more specific about which virtues of PRISM you think I've unconsciously incorporated? Over the course of my life, I have been taught, and considered, the sorts of ideas promoted by PRISM, and I have discarded most of them.

I would not encourage my children to adopt PRISM as an appropriate thought structure for their financial futures. Too much of PRISM is based on the type of conventional wisdom taught in many academic institutions. It equates risk with volatility. Even worse, it encourages people to incorporate emotion into their investment decisions with its concept of "risk tolerance," which is really nothing more than volatility tolerance. I don't believe I've unconsciously incorporated any of PRISM's risk-related concepts into my investing. Consciously, I've done my best to reject them. 

Perhaps I'm just ignorant of the wonderful benefits of PRISM, but within my blissful ignorance, I think my sole focus on long-term asset accumulation and growth is a better model for investing, especially for younger people.

Nevertheless, I do agree with you, James, that consideration of Jenna's questions is a good thing. I also think it is good to consider answers to those questions from more than one perspective.

------------------------------
Rob Adams

Original Message:
Sent: 04-26-2024 15:51
From: JAMES ISAACSON
Subject: A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals

Hi Robert,

My sense is you've already incorporated some of the virtues of the PRISM system intuitively or subconciously, and therefore it's not too beneficial to go through the step by step process including all of the documention. I'm of a like mind to you, yet I don't think the system is too complex. I think it's beneficial for those who may not be as practiced.

I think it's good to get those who've not thought about these questions that Jenna presents, to consider them.

Jim

------------------------------
JAMES ISAACSON

Original Message:
Sent: 04-17-2024 06:03
From: ROBERT ADAMS
Subject: A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals

Jenna, I guess I'm just too ignorant to understand the benefits of such complexity in managing my personal finances. I've always tried to maintain a simple focus on the long-term growth of my assets, assuming that everything else (what PRISM seems to refer to as "short-term goals") will just take care of itself. Because of my perpetual long-term focus, when I needed money to make a down payment on the house, it was there. When I needed money to pay for the children's education expenses, it was there. When I want to take a vacation, the money is there. I don't normally try to earmark particular assets to particular expenses. That seems to me to be a fruitless, unnecessarily cumbersome exercise.

All my adult life, my long-term focus has led me to maintain a 100% allocation to equities (or as close thereto as possible). I've maintained that allocation through about 12 years of retirement so far, and my assets have continued their general growth throughout that period, all the while providing the funds I need to live in relative comfort. I want that asset growth to continue until I assume room temperature. Thus, anything you might call a "short-term goal" will have to be met without disrupting my long-term focus.

In answer to your particular questions (I apologize in advance for repeating myself):

How do you assess and manage the impact of market volatility on your short-term goals?

Jenna, you ask tough questions. I don't generally assess or manage the impact of volatility; I embrace volatility and try to make positive use of it when I can. 

Nevertheless, when the market is down, I instinctively tend to tighten my belt. I might put off a vacation, vehicle purchase, or other expense if I can. For things that can't be put off, there are multiple avenues to pay for them. Strategic borrowing, earned income, dividends, and strategic asset sales can all provide cash for necessities. 

I'm not generally a fan of debt, but I took out a HELOC (Home Equity Line of Credit) to remodel my house. I could pay for the work outright, but I think it makes more sense to leave my money in the market. Although the current variable rate on my HELOC is approaching 9%, the interest expense provides a tax write-off, so the net cost is a bit lower than the nominal rate. My historical rate of asset growth in the market is well above 9%, so for now, I think it makes sense to maintain the HELOC. If the rate gets too high, I can always use qualified dividends and strategic asset sales to pay it off. I keep my debt/asset ratio very small, so paying it off in short order would not be a problem.

Because of my general discomfort with debt, I've resolved to pay $1,000 per month toward principal until the loan is paid off. The remodeling project will probably be continuing for another year or so, so I will also be drawing on it as needed. Once the project is done, I can roll the HELOC over into a fixed-interest loan if I want to.

Do you lean towards more conservative investments to mitigate risk, or do you embrace volatility as an opportunity for potential higher returns?

Volatility is wonderful! It does indeed present opportunities to buy at enhanced discounts and sell at inflated premiums. I'm not convinced that what most people regard as "conservative" investments do anything to mitigate risk. For example, I regard fixed-income investments as extremely risky. They practically guarantee attenuated returns in the long run. I want to buy and hold stocks that will grow like crazy over the long haul. If they happen to be more volatile in the process, who cares?

Inflation erodes the purchasing power of savings over time. How do you account for inflation when planning for short-term goals? Do you actively seek out investments or savings methods that offer protection against inflation?

In the long run, stocks provide an excellent hedge against inflation. But I can't think of an example when I made an investment decision that was specifically based on current or expected future inflation. I think maintaining a long-term focus puts you in a position to weather whatever storms come your way, including inflation. 

Savings Methods: What savings methods have you found most effective for achieving your short-term goals? Are you utilizing high-yield savings accounts, certificates of deposit (CDs), or other financial instruments? How do you balance liquidity and returns when selecting savings methods?

I think the best method for "achieving your short-term goals" is to save and invest for the long run. Over the course of my life, any money I've saved has found its way into the stock market as soon as possible. Stocks are highly liquid and provide superior long-term returns. Why would I tie up money in a CD or bond at lower long-term rates?

Do your short-term goals influence your overall investment strategy?

NO! Why run a marathon wearing ankle weights!?

How do you reconcile the need for liquidity with the desire for returns when investing for short-term goals?

My investing for all goals is long-term investing. Again, stocks are highly liquid. Even if circumstances forced me to sell some stocks in a down market, I could do so in a manner that minimized or reduced my taxes. If your portfolio is large enough (and it will likely become large enough if you spend a lifetime focusing solely on the long run), selling in a down market is not the big deal it's so often made out to be.

Have you encountered any challenges or unexpected outcomes in aligning your investment strategy with your short-term goals?

I don't align my investment strategy with short-term goals. Again, I focus on the long run so that the short run takes care of itself. 

------------------------------
Rob Adams

Original Message:
Sent: 04-15-2024 13:51
From: Jenna Brashear
Subject: A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals

Hello AAII Members,

In the April issue of the AAII Journal, Charles Rotblut wrote an article, "A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals," which focused in on creating a solid wealth-building plan for your short-term goals. Personally, I found this a great read as I am in the active process of buying my first home and building a strong investment portfolio to fund short-term goals.

When it comes to planning for goals like saving for a down payment on a house or a dream vacation, several factors come into play. I'm particularly interested in hearing your perspectives on the key factors you prioritize in this allocation process, including market volatility, inflation, and savings methods.

Considerations for Allocating Resources:

1. Market Volatility: How do you assess and manage the impact of market volatility on your short-term goals? Do you lean towards more conservative investments to mitigate risk, or do you embrace volatility as an opportunity for potential higher returns?
2. Inflation: Inflation erodes the purchasing power of savings over time. How do you account for inflation when planning for short-term goals? Do you actively seek out investments or savings methods that offer protection against inflation?
3. Savings Methods: What savings methods have you found most effective for achieving your short-term goals? Are you utilizing high-yield savings accounts, certificates of deposit (CDs), or other financial instruments? How do you balance liquidity and returns when selecting savings methods?

Alignment with Current Investment Strategy: Now, let's explore how these factors align with or challenge your current investment strategy:

• Do your short-term goals influence your overall investment strategy?
• How do you reconcile the need for liquidity with the desire for returns when investing for short-term goals?
• Have you encountered any challenges or unexpected outcomes in aligning your investment strategy with your short-term goals?

For those who haven't explored this framework yet, I encourage you to consider its principles and lessons as we discuss short-term goal allocation. The PRISM approach emphasizes a systematic and comprehensive approach to wealth-building, encompassing goal identification, risk assessment, investment selection and progress monitoring.

Looking forward to your thoughts!

------------------------------
Jenna Brashear
AAII Community Manager
Chicago, IL
------------------------------

Hi Rob,

I meant no offense in my remarks and hope you didn't take them as such. "Unconcious" was a poor choice of words. What I was trying to say is that you seem to have a good long term view to planning, saving and investing and thus PRISM isn't something you'd benefit from. I've explored PRISM as well, and similarly found that I didn't really need it based on where I am in terms of planning, saving and investing.

Still I think it can be beneficial for those who are less experienced or don't know where to begin. For younger folks I think it can be beneficial to help people answer questions as to how much they need to save depending on their goals and time horizon. Seems like your kids are farther along thanks to your guidance as well.

I see your point re the inclusion of emotion, but my interpretation is that they're trying guide folks to be self-aware in terms of how much volatility their emotions can tolerate. Having a written plan can help people stay more disciplined (be it money management, exercise or diet). I know I've made investing mistakes myself based on emotion, but I also have guardrails in place to keep those mistakes small and inconsequential.

I'm not sure if exercise is a good analogy, but I might liken PRISM to something of a guidance for working out..... cardio versus strength training, different muscle groups, the role that diet can play in physical conditioning etc. Some of us know these basics quite well while others "don't know where to begin". I see PRISM as a good tool for people who want some structure and guidance on the fundamentals of wealth management.

Thanks,

Jim

James, could you be a little more specific about which virtues of PRISM you think I've unconsciously incorporated? Over the course of my life, I have been taught, and considered, the sorts of ideas promoted by PRISM, and I have discarded most of them.

I would not encourage my children to adopt PRISM as an appropriate thought structure for their financial futures. Too much of PRISM is based on the type of conventional wisdom taught in many academic institutions. It equates risk with volatility. Even worse, it encourages people to incorporate emotion into their investment decisions with its concept of "risk tolerance," which is really nothing more than volatility tolerance. I don't believe I've unconsciously incorporated any of PRISM's risk-related concepts into my investing. Consciously, I've done my best to reject them. 

Perhaps I'm just ignorant of the wonderful benefits of PRISM, but within my blissful ignorance, I think my sole focus on long-term asset accumulation and growth is a better model for investing, especially for younger people.

Nevertheless, I do agree with you, James, that consideration of Jenna's questions is a good thing. I also think it is good to consider answers to those questions from more than one perspective.

------------------------------
Rob Adams

Original Message:
Sent: 04-26-2024 15:51
From: JAMES ISAACSON
Subject: A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals

Hi Robert,

My sense is you've already incorporated some of the virtues of the PRISM system intuitively or subconciously, and therefore it's not too beneficial to go through the step by step process including all of the documention. I'm of a like mind to you, yet I don't think the system is too complex. I think it's beneficial for those who may not be as practiced.

I think it's good to get those who've not thought about these questions that Jenna presents, to consider them.

Jim

------------------------------
JAMES ISAACSON

Original Message:
Sent: 04-17-2024 06:03
From: ROBERT ADAMS
Subject: A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals

Jenna, I guess I'm just too ignorant to understand the benefits of such complexity in managing my personal finances. I've always tried to maintain a simple focus on the long-term growth of my assets, assuming that everything else (what PRISM seems to refer to as "short-term goals") will just take care of itself. Because of my perpetual long-term focus, when I needed money to make a down payment on the house, it was there. When I needed money to pay for the children's education expenses, it was there. When I want to take a vacation, the money is there. I don't normally try to earmark particular assets to particular expenses. That seems to me to be a fruitless, unnecessarily cumbersome exercise.

All my adult life, my long-term focus has led me to maintain a 100% allocation to equities (or as close thereto as possible). I've maintained that allocation through about 12 years of retirement so far, and my assets have continued their general growth throughout that period, all the while providing the funds I need to live in relative comfort. I want that asset growth to continue until I assume room temperature. Thus, anything you might call a "short-term goal" will have to be met without disrupting my long-term focus.

In answer to your particular questions (I apologize in advance for repeating myself):

How do you assess and manage the impact of market volatility on your short-term goals?

Jenna, you ask tough questions. I don't generally assess or manage the impact of volatility; I embrace volatility and try to make positive use of it when I can. 

Nevertheless, when the market is down, I instinctively tend to tighten my belt. I might put off a vacation, vehicle purchase, or other expense if I can. For things that can't be put off, there are multiple avenues to pay for them. Strategic borrowing, earned income, dividends, and strategic asset sales can all provide cash for necessities. 

I'm not generally a fan of debt, but I took out a HELOC (Home Equity Line of Credit) to remodel my house. I could pay for the work outright, but I think it makes more sense to leave my money in the market. Although the current variable rate on my HELOC is approaching 9%, the interest expense provides a tax write-off, so the net cost is a bit lower than the nominal rate. My historical rate of asset growth in the market is well above 9%, so for now, I think it makes sense to maintain the HELOC. If the rate gets too high, I can always use qualified dividends and strategic asset sales to pay it off. I keep my debt/asset ratio very small, so paying it off in short order would not be a problem.

Because of my general discomfort with debt, I've resolved to pay $1,000 per month toward principal until the loan is paid off. The remodeling project will probably be continuing for another year or so, so I will also be drawing on it as needed. Once the project is done, I can roll the HELOC over into a fixed-interest loan if I want to.

Do you lean towards more conservative investments to mitigate risk, or do you embrace volatility as an opportunity for potential higher returns?

Volatility is wonderful! It does indeed present opportunities to buy at enhanced discounts and sell at inflated premiums. I'm not convinced that what most people regard as "conservative" investments do anything to mitigate risk. For example, I regard fixed-income investments as extremely risky. They practically guarantee attenuated returns in the long run. I want to buy and hold stocks that will grow like crazy over the long haul. If they happen to be more volatile in the process, who cares?

Inflation erodes the purchasing power of savings over time. How do you account for inflation when planning for short-term goals? Do you actively seek out investments or savings methods that offer protection against inflation?

In the long run, stocks provide an excellent hedge against inflation. But I can't think of an example when I made an investment decision that was specifically based on current or expected future inflation. I think maintaining a long-term focus puts you in a position to weather whatever storms come your way, including inflation. 

Savings Methods: What savings methods have you found most effective for achieving your short-term goals? Are you utilizing high-yield savings accounts, certificates of deposit (CDs), or other financial instruments? How do you balance liquidity and returns when selecting savings methods?

I think the best method for "achieving your short-term goals" is to save and invest for the long run. Over the course of my life, any money I've saved has found its way into the stock market as soon as possible. Stocks are highly liquid and provide superior long-term returns. Why would I tie up money in a CD or bond at lower long-term rates?

Do your short-term goals influence your overall investment strategy?

NO! Why run a marathon wearing ankle weights!?

How do you reconcile the need for liquidity with the desire for returns when investing for short-term goals?

My investing for all goals is long-term investing. Again, stocks are highly liquid. Even if circumstances forced me to sell some stocks in a down market, I could do so in a manner that minimized or reduced my taxes. If your portfolio is large enough (and it will likely become large enough if you spend a lifetime focusing solely on the long run), selling in a down market is not the big deal it's so often made out to be.

Have you encountered any challenges or unexpected outcomes in aligning your investment strategy with your short-term goals?

I don't align my investment strategy with short-term goals. Again, I focus on the long run so that the short run takes care of itself. 

------------------------------
Rob Adams

Original Message:
Sent: 04-15-2024 13:51
From: Jenna Brashear
Subject: A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals

Hello AAII Members,

In the April issue of the AAII Journal, Charles Rotblut wrote an article, "A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals," which focused in on creating a solid wealth-building plan for your short-term goals. Personally, I found this a great read as I am in the active process of buying my first home and building a strong investment portfolio to fund short-term goals.

When it comes to planning for goals like saving for a down payment on a house or a dream vacation, several factors come into play. I'm particularly interested in hearing your perspectives on the key factors you prioritize in this allocation process, including market volatility, inflation, and savings methods.

Considerations for Allocating Resources:

1. Market Volatility: How do you assess and manage the impact of market volatility on your short-term goals? Do you lean towards more conservative investments to mitigate risk, or do you embrace volatility as an opportunity for potential higher returns?
2. Inflation: Inflation erodes the purchasing power of savings over time. How do you account for inflation when planning for short-term goals? Do you actively seek out investments or savings methods that offer protection against inflation?
3. Savings Methods: What savings methods have you found most effective for achieving your short-term goals? Are you utilizing high-yield savings accounts, certificates of deposit (CDs), or other financial instruments? How do you balance liquidity and returns when selecting savings methods?

Alignment with Current Investment Strategy: Now, let's explore how these factors align with or challenge your current investment strategy:

• Do your short-term goals influence your overall investment strategy?
• How do you reconcile the need for liquidity with the desire for returns when investing for short-term goals?
• Have you encountered any challenges or unexpected outcomes in aligning your investment strategy with your short-term goals?

For those who haven't explored this framework yet, I encourage you to consider its principles and lessons as we discuss short-term goal allocation. The PRISM approach emphasizes a systematic and comprehensive approach to wealth-building, encompassing goal identification, risk assessment, investment selection and progress monitoring.

Looking forward to your thoughts!

------------------------------
Jenna Brashear
AAII Community Manager
Chicago, IL
------------------------------

James, no offense taken! Sorry if my post sounded snippy!

Your analogy to working out is apropos. Working out has been another of my lifelong passions. As with investing, I work out with a long-term view. I work out hard, but I've always had the attitude that "Rome wasn't built in a day." I want to look, feel, and be fit in terms of strength and endurance, and that combination requires sustained effort over time. Short-term thinking induces women to starve themselves in late spring to obtain the summer beach body. It induces guys to take anabolic steroids for the quick, easy muscle gains. But as in investing, such short-term thinking often leads to disastrous long-term results.

I really, really want to like PRISM, but the long-term financial plan I've taught my children is much simpler (and in my humble view, better). Work like crazy, save like crazy, and invest for the long run. If you don't know what to invest in, pick a low-expense-ratio domestic equity index ETF. For the truly financially ignorant, a broad index fund such as SCHB would be best. If a person would plow 20% of their earned income into such an ETF for 30 years, they would likely have a comfortable retirement, especially if it was through a Roth. Forty years would be significantly better. 

They can start investing in individual stocks when and if they become astute enough to do that, but even sticking with the ETF(s) for life will leave them in a good position. Along the way, they will find ways to use their long-term growth to fund a house, children's education, vacations, or whatever. The key is to always keep eyes on the prize, which is long-term growth. 

That's pretty much it. It doesn't require a written plan. No lengthy questionnaires. 

In addition to my other complaints, I particularly don't like the way PRISM conflates spending goals with investing goals. I might have a "goal" to take an expensive vacation. But that is a spending goal, not an investing goal. I don't work, save, and invest with that vacation in mind. Instead, I decide how much I can deduct from my long-term wealth in order to pay for the vacation. I consider whether it's worth it to sacrifice the future growth of the money I'm going to spend. I consider other expenses and how much the combination of expenses will eat into my long-term growth. 

It may seem subtle, but the difference in thinking is critical. I don't "save up" to buy a car. I save to accumulate wealth, so the earnings from that wealth will buy me a car. If I don't have enough earnings from wealth to buy the car, then I have to consider the extent to which buying the car will eat into my future wealth. Never do I consider accepting a lower return on any of my assets in order to fund the purchase of the car.

I'd feel much better about PRISM if its purveyors would offer my simple plan as an alternative. Perhaps the thing that gripes me most about PRISM is that there is too much of "this is THE way to think about investing" associated with it. Then again, maybe I'm doing the same thing. 😳

Hi Rob,

I meant no offense in my remarks and hope you didn't take them as such. "Unconcious" was a poor choice of words. What I was trying to say is that you seem to have a good long term view to planning, saving and investing and thus PRISM isn't something you'd benefit from. I've explored PRISM as well, and similarly found that I didn't really need it based on where I am in terms of planning, saving and investing.

Still I think it can be beneficial for those who are less experienced or don't know where to begin. For younger folks I think it can be beneficial to help people answer questions as to how much they need to save depending on their goals and time horizon. Seems like your kids are farther along thanks to your guidance as well.

I see your point re the inclusion of emotion, but my interpretation is that they're trying guide folks to be self-aware in terms of how much volatility their emotions can tolerate. Having a written plan can help people stay more disciplined (be it money management, exercise or diet). I know I've made investing mistakes myself based on emotion, but I also have guardrails in place to keep those mistakes small and inconsequential.

I'm not sure if exercise is a good analogy, but I might liken PRISM to something of a guidance for working out..... cardio versus strength training, different muscle groups, the role that diet can play in physical conditioning etc. Some of us know these basics quite well while others "don't know where to begin". I see PRISM as a good tool for people who want some structure and guidance on the fundamentals of wealth management.

Thanks,

Jim

James, could you be a little more specific about which virtues of PRISM you think I've unconsciously incorporated? Over the course of my life, I have been taught, and considered, the sorts of ideas promoted by PRISM, and I have discarded most of them.

I would not encourage my children to adopt PRISM as an appropriate thought structure for their financial futures. Too much of PRISM is based on the type of conventional wisdom taught in many academic institutions. It equates risk with volatility. Even worse, it encourages people to incorporate emotion into their investment decisions with its concept of "risk tolerance," which is really nothing more than volatility tolerance. I don't believe I've unconsciously incorporated any of PRISM's risk-related concepts into my investing. Consciously, I've done my best to reject them. 

Perhaps I'm just ignorant of the wonderful benefits of PRISM, but within my blissful ignorance, I think my sole focus on long-term asset accumulation and growth is a better model for investing, especially for younger people.

Nevertheless, I do agree with you, James, that consideration of Jenna's questions is a good thing. I also think it is good to consider answers to those questions from more than one perspective.

------------------------------
Rob Adams

Original Message:
Sent: 04-26-2024 15:51
From: JAMES ISAACSON
Subject: A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals

Hi Robert,

My sense is you've already incorporated some of the virtues of the PRISM system intuitively or subconciously, and therefore it's not too beneficial to go through the step by step process including all of the documention. I'm of a like mind to you, yet I don't think the system is too complex. I think it's beneficial for those who may not be as practiced.

I think it's good to get those who've not thought about these questions that Jenna presents, to consider them.

Jim

------------------------------
JAMES ISAACSON

Original Message:
Sent: 04-17-2024 06:03
From: ROBERT ADAMS
Subject: A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals

Jenna, I guess I'm just too ignorant to understand the benefits of such complexity in managing my personal finances. I've always tried to maintain a simple focus on the long-term growth of my assets, assuming that everything else (what PRISM seems to refer to as "short-term goals") will just take care of itself. Because of my perpetual long-term focus, when I needed money to make a down payment on the house, it was there. When I needed money to pay for the children's education expenses, it was there. When I want to take a vacation, the money is there. I don't normally try to earmark particular assets to particular expenses. That seems to me to be a fruitless, unnecessarily cumbersome exercise.

All my adult life, my long-term focus has led me to maintain a 100% allocation to equities (or as close thereto as possible). I've maintained that allocation through about 12 years of retirement so far, and my assets have continued their general growth throughout that period, all the while providing the funds I need to live in relative comfort. I want that asset growth to continue until I assume room temperature. Thus, anything you might call a "short-term goal" will have to be met without disrupting my long-term focus.

In answer to your particular questions (I apologize in advance for repeating myself):

How do you assess and manage the impact of market volatility on your short-term goals?

Jenna, you ask tough questions. I don't generally assess or manage the impact of volatility; I embrace volatility and try to make positive use of it when I can. 

Nevertheless, when the market is down, I instinctively tend to tighten my belt. I might put off a vacation, vehicle purchase, or other expense if I can. For things that can't be put off, there are multiple avenues to pay for them. Strategic borrowing, earned income, dividends, and strategic asset sales can all provide cash for necessities. 

I'm not generally a fan of debt, but I took out a HELOC (Home Equity Line of Credit) to remodel my house. I could pay for the work outright, but I think it makes more sense to leave my money in the market. Although the current variable rate on my HELOC is approaching 9%, the interest expense provides a tax write-off, so the net cost is a bit lower than the nominal rate. My historical rate of asset growth in the market is well above 9%, so for now, I think it makes sense to maintain the HELOC. If the rate gets too high, I can always use qualified dividends and strategic asset sales to pay it off. I keep my debt/asset ratio very small, so paying it off in short order would not be a problem.

Because of my general discomfort with debt, I've resolved to pay $1,000 per month toward principal until the loan is paid off. The remodeling project will probably be continuing for another year or so, so I will also be drawing on it as needed. Once the project is done, I can roll the HELOC over into a fixed-interest loan if I want to.

Do you lean towards more conservative investments to mitigate risk, or do you embrace volatility as an opportunity for potential higher returns?

Volatility is wonderful! It does indeed present opportunities to buy at enhanced discounts and sell at inflated premiums. I'm not convinced that what most people regard as "conservative" investments do anything to mitigate risk. For example, I regard fixed-income investments as extremely risky. They practically guarantee attenuated returns in the long run. I want to buy and hold stocks that will grow like crazy over the long haul. If they happen to be more volatile in the process, who cares?

Inflation erodes the purchasing power of savings over time. How do you account for inflation when planning for short-term goals? Do you actively seek out investments or savings methods that offer protection against inflation?

In the long run, stocks provide an excellent hedge against inflation. But I can't think of an example when I made an investment decision that was specifically based on current or expected future inflation. I think maintaining a long-term focus puts you in a position to weather whatever storms come your way, including inflation. 

Savings Methods: What savings methods have you found most effective for achieving your short-term goals? Are you utilizing high-yield savings accounts, certificates of deposit (CDs), or other financial instruments? How do you balance liquidity and returns when selecting savings methods?

I think the best method for "achieving your short-term goals" is to save and invest for the long run. Over the course of my life, any money I've saved has found its way into the stock market as soon as possible. Stocks are highly liquid and provide superior long-term returns. Why would I tie up money in a CD or bond at lower long-term rates?

Do your short-term goals influence your overall investment strategy?

NO! Why run a marathon wearing ankle weights!?

How do you reconcile the need for liquidity with the desire for returns when investing for short-term goals?

My investing for all goals is long-term investing. Again, stocks are highly liquid. Even if circumstances forced me to sell some stocks in a down market, I could do so in a manner that minimized or reduced my taxes. If your portfolio is large enough (and it will likely become large enough if you spend a lifetime focusing solely on the long run), selling in a down market is not the big deal it's so often made out to be.

Have you encountered any challenges or unexpected outcomes in aligning your investment strategy with your short-term goals?

I don't align my investment strategy with short-term goals. Again, I focus on the long run so that the short run takes care of itself. 

------------------------------
Rob Adams

Original Message:
Sent: 04-15-2024 13:51
From: Jenna Brashear
Subject: A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals

Hello AAII Members,

In the April issue of the AAII Journal, Charles Rotblut wrote an article, "A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals," which focused in on creating a solid wealth-building plan for your short-term goals. Personally, I found this a great read as I am in the active process of buying my first home and building a strong investment portfolio to fund short-term goals.

When it comes to planning for goals like saving for a down payment on a house or a dream vacation, several factors come into play. I'm particularly interested in hearing your perspectives on the key factors you prioritize in this allocation process, including market volatility, inflation, and savings methods.

Considerations for Allocating Resources:

1. Market Volatility: How do you assess and manage the impact of market volatility on your short-term goals? Do you lean towards more conservative investments to mitigate risk, or do you embrace volatility as an opportunity for potential higher returns?
2. Inflation: Inflation erodes the purchasing power of savings over time. How do you account for inflation when planning for short-term goals? Do you actively seek out investments or savings methods that offer protection against inflation?
3. Savings Methods: What savings methods have you found most effective for achieving your short-term goals? Are you utilizing high-yield savings accounts, certificates of deposit (CDs), or other financial instruments? How do you balance liquidity and returns when selecting savings methods?

Alignment with Current Investment Strategy: Now, let's explore how these factors align with or challenge your current investment strategy:

• Do your short-term goals influence your overall investment strategy?
• How do you reconcile the need for liquidity with the desire for returns when investing for short-term goals?
• Have you encountered any challenges or unexpected outcomes in aligning your investment strategy with your short-term goals?

For those who haven't explored this framework yet, I encourage you to consider its principles and lessons as we discuss short-term goal allocation. The PRISM approach emphasizes a systematic and comprehensive approach to wealth-building, encompassing goal identification, risk assessment, investment selection and progress monitoring.

Looking forward to your thoughts!

------------------------------
Jenna Brashear
AAII Community Manager
Chicago, IL
------------------------------

Conceptually I wonder if you're doing a very similar thing, but just looking at it slightly differently. I think it might just be semantics.

 If one wants to know how much they need to save in order to retire in 20 years, they're going to be forced to target an investment return to help answer the question. If they Need a car sooner, they're going to have to factor in that drain on their savings one way or another.

I think PRISM is more overt whereas your (and my) approach might be more intuitive. Still I really think they're doing the same thing.

 Jim

James, no offense taken! Sorry if my post sounded snippy!

Your analogy to working out is apropos. Working out has been another of my lifelong passions. As with investing, I work out with a long-term view. I work out hard, but I've always had the attitude that "Rome wasn't built in a day." I want to look, feel, and be fit in terms of strength and endurance, and that combination requires sustained effort over time. Short-term thinking induces women to starve themselves in late spring to obtain the summer beach body. It induces guys to take anabolic steroids for the quick, easy muscle gains. But as in investing, such short-term thinking often leads to disastrous long-term results.

I really, really want to like PRISM, but the long-term financial plan I've taught my children is much simpler (and in my humble view, better). Work like crazy, save like crazy, and invest for the long run. If you don't know what to invest in, pick a low-expense-ratio domestic equity index ETF. For the truly financially ignorant, a broad index fund such as SCHB would be best. If a person would plow 20% of their earned income into such an ETF for 30 years, they would likely have a comfortable retirement, especially if it was through a Roth. Forty years would be significantly better. 

They can start investing in individual stocks when and if they become astute enough to do that, but even sticking with the ETF(s) for life will leave them in a good position. Along the way, they will find ways to use their long-term growth to fund a house, children's education, vacations, or whatever. The key is to always keep eyes on the prize, which is long-term growth. 

That's pretty much it. It doesn't require a written plan. No lengthy questionnaires. 

In addition to my other complaints, I particularly don't like the way PRISM conflates spending goals with investing goals. I might have a "goal" to take an expensive vacation. But that is a spending goal, not an investing goal. I don't work, save, and invest with that vacation in mind. Instead, I decide how much I can deduct from my long-term wealth in order to pay for the vacation. I consider whether it's worth it to sacrifice the future growth of the money I'm going to spend. I consider other expenses and how much the combination of expenses will eat into my long-term growth. 

It may seem subtle, but the difference in thinking is critical. I don't "save up" to buy a car. I save to accumulate wealth, so the earnings from that wealth will buy me a car. If I don't have enough earnings from wealth to buy the car, then I have to consider the extent to which buying the car will eat into my future wealth. Never do I consider accepting a lower return on any of my assets in order to fund the purchase of the car.

I'd feel much better about PRISM if its purveyors would offer my simple plan as an alternative. Perhaps the thing that gripes me most about PRISM is that there is too much of "this is THE way to think about investing" associated with it. Then again, maybe I'm doing the same thing. 😳

Hi Rob,

I meant no offense in my remarks and hope you didn't take them as such. "Unconcious" was a poor choice of words. What I was trying to say is that you seem to have a good long term view to planning, saving and investing and thus PRISM isn't something you'd benefit from. I've explored PRISM as well, and similarly found that I didn't really need it based on where I am in terms of planning, saving and investing.

Still I think it can be beneficial for those who are less experienced or don't know where to begin. For younger folks I think it can be beneficial to help people answer questions as to how much they need to save depending on their goals and time horizon. Seems like your kids are farther along thanks to your guidance as well.

I see your point re the inclusion of emotion, but my interpretation is that they're trying guide folks to be self-aware in terms of how much volatility their emotions can tolerate. Having a written plan can help people stay more disciplined (be it money management, exercise or diet). I know I've made investing mistakes myself based on emotion, but I also have guardrails in place to keep those mistakes small and inconsequential.

I'm not sure if exercise is a good analogy, but I might liken PRISM to something of a guidance for working out..... cardio versus strength training, different muscle groups, the role that diet can play in physical conditioning etc. Some of us know these basics quite well while others "don't know where to begin". I see PRISM as a good tool for people who want some structure and guidance on the fundamentals of wealth management.

Thanks,

Jim

James, could you be a little more specific about which virtues of PRISM you think I've unconsciously incorporated? Over the course of my life, I have been taught, and considered, the sorts of ideas promoted by PRISM, and I have discarded most of them.

I would not encourage my children to adopt PRISM as an appropriate thought structure for their financial futures. Too much of PRISM is based on the type of conventional wisdom taught in many academic institutions. It equates risk with volatility. Even worse, it encourages people to incorporate emotion into their investment decisions with its concept of "risk tolerance," which is really nothing more than volatility tolerance. I don't believe I've unconsciously incorporated any of PRISM's risk-related concepts into my investing. Consciously, I've done my best to reject them. 

Perhaps I'm just ignorant of the wonderful benefits of PRISM, but within my blissful ignorance, I think my sole focus on long-term asset accumulation and growth is a better model for investing, especially for younger people.

Nevertheless, I do agree with you, James, that consideration of Jenna's questions is a good thing. I also think it is good to consider answers to those questions from more than one perspective.

------------------------------
Rob Adams

Original Message:
Sent: 04-26-2024 15:51
From: JAMES ISAACSON
Subject: A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals

Hi Robert,

My sense is you've already incorporated some of the virtues of the PRISM system intuitively or subconciously, and therefore it's not too beneficial to go through the step by step process including all of the documention. I'm of a like mind to you, yet I don't think the system is too complex. I think it's beneficial for those who may not be as practiced.

I think it's good to get those who've not thought about these questions that Jenna presents, to consider them.

Jim

------------------------------
JAMES ISAACSON

Original Message:
Sent: 04-17-2024 06:03
From: ROBERT ADAMS
Subject: A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals

Jenna, I guess I'm just too ignorant to understand the benefits of such complexity in managing my personal finances. I've always tried to maintain a simple focus on the long-term growth of my assets, assuming that everything else (what PRISM seems to refer to as "short-term goals") will just take care of itself. Because of my perpetual long-term focus, when I needed money to make a down payment on the house, it was there. When I needed money to pay for the children's education expenses, it was there. When I want to take a vacation, the money is there. I don't normally try to earmark particular assets to particular expenses. That seems to me to be a fruitless, unnecessarily cumbersome exercise.

All my adult life, my long-term focus has led me to maintain a 100% allocation to equities (or as close thereto as possible). I've maintained that allocation through about 12 years of retirement so far, and my assets have continued their general growth throughout that period, all the while providing the funds I need to live in relative comfort. I want that asset growth to continue until I assume room temperature. Thus, anything you might call a "short-term goal" will have to be met without disrupting my long-term focus.

In answer to your particular questions (I apologize in advance for repeating myself):

How do you assess and manage the impact of market volatility on your short-term goals?

Jenna, you ask tough questions. I don't generally assess or manage the impact of volatility; I embrace volatility and try to make positive use of it when I can. 

Nevertheless, when the market is down, I instinctively tend to tighten my belt. I might put off a vacation, vehicle purchase, or other expense if I can. For things that can't be put off, there are multiple avenues to pay for them. Strategic borrowing, earned income, dividends, and strategic asset sales can all provide cash for necessities. 

I'm not generally a fan of debt, but I took out a HELOC (Home Equity Line of Credit) to remodel my house. I could pay for the work outright, but I think it makes more sense to leave my money in the market. Although the current variable rate on my HELOC is approaching 9%, the interest expense provides a tax write-off, so the net cost is a bit lower than the nominal rate. My historical rate of asset growth in the market is well above 9%, so for now, I think it makes sense to maintain the HELOC. If the rate gets too high, I can always use qualified dividends and strategic asset sales to pay it off. I keep my debt/asset ratio very small, so paying it off in short order would not be a problem.

Because of my general discomfort with debt, I've resolved to pay $1,000 per month toward principal until the loan is paid off. The remodeling project will probably be continuing for another year or so, so I will also be drawing on it as needed. Once the project is done, I can roll the HELOC over into a fixed-interest loan if I want to.

Do you lean towards more conservative investments to mitigate risk, or do you embrace volatility as an opportunity for potential higher returns?

Volatility is wonderful! It does indeed present opportunities to buy at enhanced discounts and sell at inflated premiums. I'm not convinced that what most people regard as "conservative" investments do anything to mitigate risk. For example, I regard fixed-income investments as extremely risky. They practically guarantee attenuated returns in the long run. I want to buy and hold stocks that will grow like crazy over the long haul. If they happen to be more volatile in the process, who cares?

Inflation erodes the purchasing power of savings over time. How do you account for inflation when planning for short-term goals? Do you actively seek out investments or savings methods that offer protection against inflation?

In the long run, stocks provide an excellent hedge against inflation. But I can't think of an example when I made an investment decision that was specifically based on current or expected future inflation. I think maintaining a long-term focus puts you in a position to weather whatever storms come your way, including inflation. 

Savings Methods: What savings methods have you found most effective for achieving your short-term goals? Are you utilizing high-yield savings accounts, certificates of deposit (CDs), or other financial instruments? How do you balance liquidity and returns when selecting savings methods?

I think the best method for "achieving your short-term goals" is to save and invest for the long run. Over the course of my life, any money I've saved has found its way into the stock market as soon as possible. Stocks are highly liquid and provide superior long-term returns. Why would I tie up money in a CD or bond at lower long-term rates?

Do your short-term goals influence your overall investment strategy?

NO! Why run a marathon wearing ankle weights!?

How do you reconcile the need for liquidity with the desire for returns when investing for short-term goals?

My investing for all goals is long-term investing. Again, stocks are highly liquid. Even if circumstances forced me to sell some stocks in a down market, I could do so in a manner that minimized or reduced my taxes. If your portfolio is large enough (and it will likely become large enough if you spend a lifetime focusing solely on the long run), selling in a down market is not the big deal it's so often made out to be.

Have you encountered any challenges or unexpected outcomes in aligning your investment strategy with your short-term goals?

I don't align my investment strategy with short-term goals. Again, I focus on the long run so that the short run takes care of itself. 

------------------------------
Rob Adams

Original Message:
Sent: 04-15-2024 13:51
From: Jenna Brashear
Subject: A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals

Hello AAII Members,

In the April issue of the AAII Journal, Charles Rotblut wrote an article, "A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals," which focused in on creating a solid wealth-building plan for your short-term goals. Personally, I found this a great read as I am in the active process of buying my first home and building a strong investment portfolio to fund short-term goals.

When it comes to planning for goals like saving for a down payment on a house or a dream vacation, several factors come into play. I'm particularly interested in hearing your perspectives on the key factors you prioritize in this allocation process, including market volatility, inflation, and savings methods.

Considerations for Allocating Resources:

1. Market Volatility: How do you assess and manage the impact of market volatility on your short-term goals? Do you lean towards more conservative investments to mitigate risk, or do you embrace volatility as an opportunity for potential higher returns?
2. Inflation: Inflation erodes the purchasing power of savings over time. How do you account for inflation when planning for short-term goals? Do you actively seek out investments or savings methods that offer protection against inflation?
3. Savings Methods: What savings methods have you found most effective for achieving your short-term goals? Are you utilizing high-yield savings accounts, certificates of deposit (CDs), or other financial instruments? How do you balance liquidity and returns when selecting savings methods?

Alignment with Current Investment Strategy: Now, let's explore how these factors align with or challenge your current investment strategy:

• Do your short-term goals influence your overall investment strategy?
• How do you reconcile the need for liquidity with the desire for returns when investing for short-term goals?
• Have you encountered any challenges or unexpected outcomes in aligning your investment strategy with your short-term goals?

For those who haven't explored this framework yet, I encourage you to consider its principles and lessons as we discuss short-term goal allocation. The PRISM approach emphasizes a systematic and comprehensive approach to wealth-building, encompassing goal identification, risk assessment, investment selection and progress monitoring.

Looking forward to your thoughts!

------------------------------
Jenna Brashear
AAII Community Manager
Chicago, IL
------------------------------

James, I think you're reaching a bit, but I'll leave it there.

At the risk of running a little off-topic, and on the subject of fitness, once upon a time, I earned a master's degree in a health-related field. In my studies, I bought into the government's idea of proper nutrition---the food pyramid and all that. I did my best to follow their dietary guidelines, but beginning in my mid-30s, I started gaining weight. No matter how hard I worked out, no matter how much I ran, no matter what I ate, I kept gaining weight. I tried cutting fat from my diet. I tried everything I could think of. I finally had to quit running because the weight I was carrying was causing orthopedic injuries. 

About 10 years ago, someone suggested I try going low carb for a couple of weeks and see how it went. I was highly skeptical, since I was taught, and believed, that Dr. Atkins was a kook. But I was willing to try anything, and I did. It changed my life. My weight plummeted and has stayed off. My blood work is better than now than it was in my mid-20s. For the past decade, I have benefited greatly from maintaining a very-low-carb lifestyle.  

This story might seem unrelated to investing, but for me, it reinforced my general mistrust of "expert" advice. Having also worked in the investment industry, I have an even stronger mistrust of "expert" investment advice.

Conceptually I wonder if you're doing a very similar thing, but just looking at it slightly differently. I think it might just be semantics.

 If one wants to know how much they need to save in order to retire in 20 years, they're going to be forced to target an investment return to help answer the question. If they Need a car sooner, they're going to have to factor in that drain on their savings one way or another.

I think PRISM is more overt whereas your (and my) approach might be more intuitive. Still I really think they're doing the same thing.

 Jim

James, no offense taken! Sorry if my post sounded snippy!

Your analogy to working out is apropos. Working out has been another of my lifelong passions. As with investing, I work out with a long-term view. I work out hard, but I've always had the attitude that "Rome wasn't built in a day." I want to look, feel, and be fit in terms of strength and endurance, and that combination requires sustained effort over time. Short-term thinking induces women to starve themselves in late spring to obtain the summer beach body. It induces guys to take anabolic steroids for the quick, easy muscle gains. But as in investing, such short-term thinking often leads to disastrous long-term results.

I really, really want to like PRISM, but the long-term financial plan I've taught my children is much simpler (and in my humble view, better). Work like crazy, save like crazy, and invest for the long run. If you don't know what to invest in, pick a low-expense-ratio domestic equity index ETF. For the truly financially ignorant, a broad index fund such as SCHB would be best. If a person would plow 20% of their earned income into such an ETF for 30 years, they would likely have a comfortable retirement, especially if it was through a Roth. Forty years would be significantly better. 

They can start investing in individual stocks when and if they become astute enough to do that, but even sticking with the ETF(s) for life will leave them in a good position. Along the way, they will find ways to use their long-term growth to fund a house, children's education, vacations, or whatever. The key is to always keep eyes on the prize, which is long-term growth. 

That's pretty much it. It doesn't require a written plan. No lengthy questionnaires. 

In addition to my other complaints, I particularly don't like the way PRISM conflates spending goals with investing goals. I might have a "goal" to take an expensive vacation. But that is a spending goal, not an investing goal. I don't work, save, and invest with that vacation in mind. Instead, I decide how much I can deduct from my long-term wealth in order to pay for the vacation. I consider whether it's worth it to sacrifice the future growth of the money I'm going to spend. I consider other expenses and how much the combination of expenses will eat into my long-term growth. 

It may seem subtle, but the difference in thinking is critical. I don't "save up" to buy a car. I save to accumulate wealth, so the earnings from that wealth will buy me a car. If I don't have enough earnings from wealth to buy the car, then I have to consider the extent to which buying the car will eat into my future wealth. Never do I consider accepting a lower return on any of my assets in order to fund the purchase of the car.

I'd feel much better about PRISM if its purveyors would offer my simple plan as an alternative. Perhaps the thing that gripes me most about PRISM is that there is too much of "this is THE way to think about investing" associated with it. Then again, maybe I'm doing the same thing. 😳

Hi Rob,

I meant no offense in my remarks and hope you didn't take them as such. "Unconcious" was a poor choice of words. What I was trying to say is that you seem to have a good long term view to planning, saving and investing and thus PRISM isn't something you'd benefit from. I've explored PRISM as well, and similarly found that I didn't really need it based on where I am in terms of planning, saving and investing.

Still I think it can be beneficial for those who are less experienced or don't know where to begin. For younger folks I think it can be beneficial to help people answer questions as to how much they need to save depending on their goals and time horizon. Seems like your kids are farther along thanks to your guidance as well.

I see your point re the inclusion of emotion, but my interpretation is that they're trying guide folks to be self-aware in terms of how much volatility their emotions can tolerate. Having a written plan can help people stay more disciplined (be it money management, exercise or diet). I know I've made investing mistakes myself based on emotion, but I also have guardrails in place to keep those mistakes small and inconsequential.

I'm not sure if exercise is a good analogy, but I might liken PRISM to something of a guidance for working out..... cardio versus strength training, different muscle groups, the role that diet can play in physical conditioning etc. Some of us know these basics quite well while others "don't know where to begin". I see PRISM as a good tool for people who want some structure and guidance on the fundamentals of wealth management.

Thanks,

Jim

James, could you be a little more specific about which virtues of PRISM you think I've unconsciously incorporated? Over the course of my life, I have been taught, and considered, the sorts of ideas promoted by PRISM, and I have discarded most of them.

I would not encourage my children to adopt PRISM as an appropriate thought structure for their financial futures. Too much of PRISM is based on the type of conventional wisdom taught in many academic institutions. It equates risk with volatility. Even worse, it encourages people to incorporate emotion into their investment decisions with its concept of "risk tolerance," which is really nothing more than volatility tolerance. I don't believe I've unconsciously incorporated any of PRISM's risk-related concepts into my investing. Consciously, I've done my best to reject them. 

Perhaps I'm just ignorant of the wonderful benefits of PRISM, but within my blissful ignorance, I think my sole focus on long-term asset accumulation and growth is a better model for investing, especially for younger people.

Nevertheless, I do agree with you, James, that consideration of Jenna's questions is a good thing. I also think it is good to consider answers to those questions from more than one perspective.

------------------------------
Rob Adams

Original Message:
Sent: 04-26-2024 15:51
From: JAMES ISAACSON
Subject: A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals

Hi Robert,

My sense is you've already incorporated some of the virtues of the PRISM system intuitively or subconciously, and therefore it's not too beneficial to go through the step by step process including all of the documention. I'm of a like mind to you, yet I don't think the system is too complex. I think it's beneficial for those who may not be as practiced.

I think it's good to get those who've not thought about these questions that Jenna presents, to consider them.

Jim

------------------------------
JAMES ISAACSON

Original Message:
Sent: 04-17-2024 06:03
From: ROBERT ADAMS
Subject: A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals

Jenna, I guess I'm just too ignorant to understand the benefits of such complexity in managing my personal finances. I've always tried to maintain a simple focus on the long-term growth of my assets, assuming that everything else (what PRISM seems to refer to as "short-term goals") will just take care of itself. Because of my perpetual long-term focus, when I needed money to make a down payment on the house, it was there. When I needed money to pay for the children's education expenses, it was there. When I want to take a vacation, the money is there. I don't normally try to earmark particular assets to particular expenses. That seems to me to be a fruitless, unnecessarily cumbersome exercise.

All my adult life, my long-term focus has led me to maintain a 100% allocation to equities (or as close thereto as possible). I've maintained that allocation through about 12 years of retirement so far, and my assets have continued their general growth throughout that period, all the while providing the funds I need to live in relative comfort. I want that asset growth to continue until I assume room temperature. Thus, anything you might call a "short-term goal" will have to be met without disrupting my long-term focus.

In answer to your particular questions (I apologize in advance for repeating myself):

How do you assess and manage the impact of market volatility on your short-term goals?

Jenna, you ask tough questions. I don't generally assess or manage the impact of volatility; I embrace volatility and try to make positive use of it when I can. 

Nevertheless, when the market is down, I instinctively tend to tighten my belt. I might put off a vacation, vehicle purchase, or other expense if I can. For things that can't be put off, there are multiple avenues to pay for them. Strategic borrowing, earned income, dividends, and strategic asset sales can all provide cash for necessities. 

I'm not generally a fan of debt, but I took out a HELOC (Home Equity Line of Credit) to remodel my house. I could pay for the work outright, but I think it makes more sense to leave my money in the market. Although the current variable rate on my HELOC is approaching 9%, the interest expense provides a tax write-off, so the net cost is a bit lower than the nominal rate. My historical rate of asset growth in the market is well above 9%, so for now, I think it makes sense to maintain the HELOC. If the rate gets too high, I can always use qualified dividends and strategic asset sales to pay it off. I keep my debt/asset ratio very small, so paying it off in short order would not be a problem.

Because of my general discomfort with debt, I've resolved to pay $1,000 per month toward principal until the loan is paid off. The remodeling project will probably be continuing for another year or so, so I will also be drawing on it as needed. Once the project is done, I can roll the HELOC over into a fixed-interest loan if I want to.

Do you lean towards more conservative investments to mitigate risk, or do you embrace volatility as an opportunity for potential higher returns?

Volatility is wonderful! It does indeed present opportunities to buy at enhanced discounts and sell at inflated premiums. I'm not convinced that what most people regard as "conservative" investments do anything to mitigate risk. For example, I regard fixed-income investments as extremely risky. They practically guarantee attenuated returns in the long run. I want to buy and hold stocks that will grow like crazy over the long haul. If they happen to be more volatile in the process, who cares?

Inflation erodes the purchasing power of savings over time. How do you account for inflation when planning for short-term goals? Do you actively seek out investments or savings methods that offer protection against inflation?

In the long run, stocks provide an excellent hedge against inflation. But I can't think of an example when I made an investment decision that was specifically based on current or expected future inflation. I think maintaining a long-term focus puts you in a position to weather whatever storms come your way, including inflation. 

Savings Methods: What savings methods have you found most effective for achieving your short-term goals? Are you utilizing high-yield savings accounts, certificates of deposit (CDs), or other financial instruments? How do you balance liquidity and returns when selecting savings methods?

I think the best method for "achieving your short-term goals" is to save and invest for the long run. Over the course of my life, any money I've saved has found its way into the stock market as soon as possible. Stocks are highly liquid and provide superior long-term returns. Why would I tie up money in a CD or bond at lower long-term rates?

Do your short-term goals influence your overall investment strategy?

NO! Why run a marathon wearing ankle weights!?

How do you reconcile the need for liquidity with the desire for returns when investing for short-term goals?

My investing for all goals is long-term investing. Again, stocks are highly liquid. Even if circumstances forced me to sell some stocks in a down market, I could do so in a manner that minimized or reduced my taxes. If your portfolio is large enough (and it will likely become large enough if you spend a lifetime focusing solely on the long run), selling in a down market is not the big deal it's so often made out to be.

Have you encountered any challenges or unexpected outcomes in aligning your investment strategy with your short-term goals?

I don't align my investment strategy with short-term goals. Again, I focus on the long run so that the short run takes care of itself. 

------------------------------
Rob Adams

Original Message:
Sent: 04-15-2024 13:51
From: Jenna Brashear
Subject: A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals

Hello AAII Members,

In the April issue of the AAII Journal, Charles Rotblut wrote an article, "A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals," which focused in on creating a solid wealth-building plan for your short-term goals. Personally, I found this a great read as I am in the active process of buying my first home and building a strong investment portfolio to fund short-term goals.

When it comes to planning for goals like saving for a down payment on a house or a dream vacation, several factors come into play. I'm particularly interested in hearing your perspectives on the key factors you prioritize in this allocation process, including market volatility, inflation, and savings methods.

Considerations for Allocating Resources:

1. Market Volatility: How do you assess and manage the impact of market volatility on your short-term goals? Do you lean towards more conservative investments to mitigate risk, or do you embrace volatility as an opportunity for potential higher returns?
2. Inflation: Inflation erodes the purchasing power of savings over time. How do you account for inflation when planning for short-term goals? Do you actively seek out investments or savings methods that offer protection against inflation?
3. Savings Methods: What savings methods have you found most effective for achieving your short-term goals? Are you utilizing high-yield savings accounts, certificates of deposit (CDs), or other financial instruments? How do you balance liquidity and returns when selecting savings methods?

Alignment with Current Investment Strategy: Now, let's explore how these factors align with or challenge your current investment strategy:

• Do your short-term goals influence your overall investment strategy?
• How do you reconcile the need for liquidity with the desire for returns when investing for short-term goals?
• Have you encountered any challenges or unexpected outcomes in aligning your investment strategy with your short-term goals?

For those who haven't explored this framework yet, I encourage you to consider its principles and lessons as we discuss short-term goal allocation. The PRISM approach emphasizes a systematic and comprehensive approach to wealth-building, encompassing goal identification, risk assessment, investment selection and progress monitoring.

Looking forward to your thoughts!

------------------------------
Jenna Brashear
AAII Community Manager
Chicago, IL
------------------------------

No disagreement re fitness or trusting experts. I'm not suggesting to put all faith in PRISM, a personal trainer's plan or even a doctor. One size doesn't fit all and we should all stay informed even if or as we consult "experts", no matter the vocation.

I think there are limitations with the written dialogue where we're not seeing expressions or hearing intonations…. I think that's been our primary challenge.

nice chatting….

Jim

James, I think you're reaching a bit, but I'll leave it there.

At the risk of running a little off-topic, and on the subject of fitness, once upon a time, I earned a master's degree in a health-related field. In my studies, I bought into the government's idea of proper nutrition---the food pyramid and all that. I did my best to follow their dietary guidelines, but beginning in my mid-30s, I started gaining weight. No matter how hard I worked out, no matter how much I ran, no matter what I ate, I kept gaining weight. I tried cutting fat from my diet. I tried everything I could think of. I finally had to quit running because the weight I was carrying was causing orthopedic injuries. 

About 10 years ago, someone suggested I try going low carb for a couple of weeks and see how it went. I was highly skeptical, since I was taught, and believed, that Dr. Atkins was a kook. But I was willing to try anything, and I did. It changed my life. My weight plummeted and has stayed off. My blood work is better than now than it was in my mid-20s. For the past decade, I have benefited greatly from maintaining a very-low-carb lifestyle.  

This story might seem unrelated to investing, but for me, it reinforced my general mistrust of "expert" advice. Having also worked in the investment industry, I have an even stronger mistrust of "expert" investment advice.

Conceptually I wonder if you're doing a very similar thing, but just looking at it slightly differently. I think it might just be semantics.

 If one wants to know how much they need to save in order to retire in 20 years, they're going to be forced to target an investment return to help answer the question. If they Need a car sooner, they're going to have to factor in that drain on their savings one way or another.

I think PRISM is more overt whereas your (and my) approach might be more intuitive. Still I really think they're doing the same thing.

 Jim

James, no offense taken! Sorry if my post sounded snippy!

Your analogy to working out is apropos. Working out has been another of my lifelong passions. As with investing, I work out with a long-term view. I work out hard, but I've always had the attitude that "Rome wasn't built in a day." I want to look, feel, and be fit in terms of strength and endurance, and that combination requires sustained effort over time. Short-term thinking induces women to starve themselves in late spring to obtain the summer beach body. It induces guys to take anabolic steroids for the quick, easy muscle gains. But as in investing, such short-term thinking often leads to disastrous long-term results.

I really, really want to like PRISM, but the long-term financial plan I've taught my children is much simpler (and in my humble view, better). Work like crazy, save like crazy, and invest for the long run. If you don't know what to invest in, pick a low-expense-ratio domestic equity index ETF. For the truly financially ignorant, a broad index fund such as SCHB would be best. If a person would plow 20% of their earned income into such an ETF for 30 years, they would likely have a comfortable retirement, especially if it was through a Roth. Forty years would be significantly better. 

They can start investing in individual stocks when and if they become astute enough to do that, but even sticking with the ETF(s) for life will leave them in a good position. Along the way, they will find ways to use their long-term growth to fund a house, children's education, vacations, or whatever. The key is to always keep eyes on the prize, which is long-term growth. 

That's pretty much it. It doesn't require a written plan. No lengthy questionnaires. 

In addition to my other complaints, I particularly don't like the way PRISM conflates spending goals with investing goals. I might have a "goal" to take an expensive vacation. But that is a spending goal, not an investing goal. I don't work, save, and invest with that vacation in mind. Instead, I decide how much I can deduct from my long-term wealth in order to pay for the vacation. I consider whether it's worth it to sacrifice the future growth of the money I'm going to spend. I consider other expenses and how much the combination of expenses will eat into my long-term growth. 

It may seem subtle, but the difference in thinking is critical. I don't "save up" to buy a car. I save to accumulate wealth, so the earnings from that wealth will buy me a car. If I don't have enough earnings from wealth to buy the car, then I have to consider the extent to which buying the car will eat into my future wealth. Never do I consider accepting a lower return on any of my assets in order to fund the purchase of the car.

I'd feel much better about PRISM if its purveyors would offer my simple plan as an alternative. Perhaps the thing that gripes me most about PRISM is that there is too much of "this is THE way to think about investing" associated with it. Then again, maybe I'm doing the same thing. 😳

Hi Rob,

I meant no offense in my remarks and hope you didn't take them as such. "Unconcious" was a poor choice of words. What I was trying to say is that you seem to have a good long term view to planning, saving and investing and thus PRISM isn't something you'd benefit from. I've explored PRISM as well, and similarly found that I didn't really need it based on where I am in terms of planning, saving and investing.

Still I think it can be beneficial for those who are less experienced or don't know where to begin. For younger folks I think it can be beneficial to help people answer questions as to how much they need to save depending on their goals and time horizon. Seems like your kids are farther along thanks to your guidance as well.

I see your point re the inclusion of emotion, but my interpretation is that they're trying guide folks to be self-aware in terms of how much volatility their emotions can tolerate. Having a written plan can help people stay more disciplined (be it money management, exercise or diet). I know I've made investing mistakes myself based on emotion, but I also have guardrails in place to keep those mistakes small and inconsequential.

I'm not sure if exercise is a good analogy, but I might liken PRISM to something of a guidance for working out..... cardio versus strength training, different muscle groups, the role that diet can play in physical conditioning etc. Some of us know these basics quite well while others "don't know where to begin". I see PRISM as a good tool for people who want some structure and guidance on the fundamentals of wealth management.

Thanks,

Jim

James, could you be a little more specific about which virtues of PRISM you think I've unconsciously incorporated? Over the course of my life, I have been taught, and considered, the sorts of ideas promoted by PRISM, and I have discarded most of them.

I would not encourage my children to adopt PRISM as an appropriate thought structure for their financial futures. Too much of PRISM is based on the type of conventional wisdom taught in many academic institutions. It equates risk with volatility. Even worse, it encourages people to incorporate emotion into their investment decisions with its concept of "risk tolerance," which is really nothing more than volatility tolerance. I don't believe I've unconsciously incorporated any of PRISM's risk-related concepts into my investing. Consciously, I've done my best to reject them. 

Perhaps I'm just ignorant of the wonderful benefits of PRISM, but within my blissful ignorance, I think my sole focus on long-term asset accumulation and growth is a better model for investing, especially for younger people.

Nevertheless, I do agree with you, James, that consideration of Jenna's questions is a good thing. I also think it is good to consider answers to those questions from more than one perspective.

------------------------------
Rob Adams

Original Message:
Sent: 04-26-2024 15:51
From: JAMES ISAACSON
Subject: A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals

Hi Robert,

My sense is you've already incorporated some of the virtues of the PRISM system intuitively or subconciously, and therefore it's not too beneficial to go through the step by step process including all of the documention. I'm of a like mind to you, yet I don't think the system is too complex. I think it's beneficial for those who may not be as practiced.

I think it's good to get those who've not thought about these questions that Jenna presents, to consider them.

Jim

------------------------------
JAMES ISAACSON

Original Message:
Sent: 04-17-2024 06:03
From: ROBERT ADAMS
Subject: A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals

Jenna, I guess I'm just too ignorant to understand the benefits of such complexity in managing my personal finances. I've always tried to maintain a simple focus on the long-term growth of my assets, assuming that everything else (what PRISM seems to refer to as "short-term goals") will just take care of itself. Because of my perpetual long-term focus, when I needed money to make a down payment on the house, it was there. When I needed money to pay for the children's education expenses, it was there. When I want to take a vacation, the money is there. I don't normally try to earmark particular assets to particular expenses. That seems to me to be a fruitless, unnecessarily cumbersome exercise.

All my adult life, my long-term focus has led me to maintain a 100% allocation to equities (or as close thereto as possible). I've maintained that allocation through about 12 years of retirement so far, and my assets have continued their general growth throughout that period, all the while providing the funds I need to live in relative comfort. I want that asset growth to continue until I assume room temperature. Thus, anything you might call a "short-term goal" will have to be met without disrupting my long-term focus.

In answer to your particular questions (I apologize in advance for repeating myself):

How do you assess and manage the impact of market volatility on your short-term goals?

Jenna, you ask tough questions. I don't generally assess or manage the impact of volatility; I embrace volatility and try to make positive use of it when I can. 

Nevertheless, when the market is down, I instinctively tend to tighten my belt. I might put off a vacation, vehicle purchase, or other expense if I can. For things that can't be put off, there are multiple avenues to pay for them. Strategic borrowing, earned income, dividends, and strategic asset sales can all provide cash for necessities. 

I'm not generally a fan of debt, but I took out a HELOC (Home Equity Line of Credit) to remodel my house. I could pay for the work outright, but I think it makes more sense to leave my money in the market. Although the current variable rate on my HELOC is approaching 9%, the interest expense provides a tax write-off, so the net cost is a bit lower than the nominal rate. My historical rate of asset growth in the market is well above 9%, so for now, I think it makes sense to maintain the HELOC. If the rate gets too high, I can always use qualified dividends and strategic asset sales to pay it off. I keep my debt/asset ratio very small, so paying it off in short order would not be a problem.

Because of my general discomfort with debt, I've resolved to pay $1,000 per month toward principal until the loan is paid off. The remodeling project will probably be continuing for another year or so, so I will also be drawing on it as needed. Once the project is done, I can roll the HELOC over into a fixed-interest loan if I want to.

Do you lean towards more conservative investments to mitigate risk, or do you embrace volatility as an opportunity for potential higher returns?

Volatility is wonderful! It does indeed present opportunities to buy at enhanced discounts and sell at inflated premiums. I'm not convinced that what most people regard as "conservative" investments do anything to mitigate risk. For example, I regard fixed-income investments as extremely risky. They practically guarantee attenuated returns in the long run. I want to buy and hold stocks that will grow like crazy over the long haul. If they happen to be more volatile in the process, who cares?

Inflation erodes the purchasing power of savings over time. How do you account for inflation when planning for short-term goals? Do you actively seek out investments or savings methods that offer protection against inflation?

In the long run, stocks provide an excellent hedge against inflation. But I can't think of an example when I made an investment decision that was specifically based on current or expected future inflation. I think maintaining a long-term focus puts you in a position to weather whatever storms come your way, including inflation. 

Savings Methods: What savings methods have you found most effective for achieving your short-term goals? Are you utilizing high-yield savings accounts, certificates of deposit (CDs), or other financial instruments? How do you balance liquidity and returns when selecting savings methods?

I think the best method for "achieving your short-term goals" is to save and invest for the long run. Over the course of my life, any money I've saved has found its way into the stock market as soon as possible. Stocks are highly liquid and provide superior long-term returns. Why would I tie up money in a CD or bond at lower long-term rates?

Do your short-term goals influence your overall investment strategy?

NO! Why run a marathon wearing ankle weights!?

How do you reconcile the need for liquidity with the desire for returns when investing for short-term goals?

My investing for all goals is long-term investing. Again, stocks are highly liquid. Even if circumstances forced me to sell some stocks in a down market, I could do so in a manner that minimized or reduced my taxes. If your portfolio is large enough (and it will likely become large enough if you spend a lifetime focusing solely on the long run), selling in a down market is not the big deal it's so often made out to be.

Have you encountered any challenges or unexpected outcomes in aligning your investment strategy with your short-term goals?

I don't align my investment strategy with short-term goals. Again, I focus on the long run so that the short run takes care of itself. 

------------------------------
Rob Adams

Original Message:
Sent: 04-15-2024 13:51
From: Jenna Brashear
Subject: A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals

Hello AAII Members,

In the April issue of the AAII Journal, Charles Rotblut wrote an article, "A One-Page Wealth-Building Plan for First-Time Homebuyers and Other Short-Term Goals," which focused in on creating a solid wealth-building plan for your short-term goals. Personally, I found this a great read as I am in the active process of buying my first home and building a strong investment portfolio to fund short-term goals.

When it comes to planning for goals like saving for a down payment on a house or a dream vacation, several factors come into play. I'm particularly interested in hearing your perspectives on the key factors you prioritize in this allocation process, including market volatility, inflation, and savings methods.

Considerations for Allocating Resources:

1. Market Volatility: How do you assess and manage the impact of market volatility on your short-term goals? Do you lean towards more conservative investments to mitigate risk, or do you embrace volatility as an opportunity for potential higher returns?
2. Inflation: Inflation erodes the purchasing power of savings over time. How do you account for inflation when planning for short-term goals? Do you actively seek out investments or savings methods that offer protection against inflation?
3. Savings Methods: What savings methods have you found most effective for achieving your short-term goals? Are you utilizing high-yield savings accounts, certificates of deposit (CDs), or other financial instruments? How do you balance liquidity and returns when selecting savings methods?

Alignment with Current Investment Strategy: Now, let's explore how these factors align with or challenge your current investment strategy:

• Do your short-term goals influence your overall investment strategy?
• How do you reconcile the need for liquidity with the desire for returns when investing for short-term goals?
• Have you encountered any challenges or unexpected outcomes in aligning your investment strategy with your short-term goals?

For those who haven't explored this framework yet, I encourage you to consider its principles and lessons as we discuss short-term goal allocation. The PRISM approach emphasizes a systematic and comprehensive approach to wealth-building, encompassing goal identification, risk assessment, investment selection and progress monitoring.

Looking forward to your thoughts!

------------------------------
Jenna Brashear
AAII Community Manager
Chicago, IL
------------------------------