contrarian philosophy

Money Two Ways: Balances and Flows
photo shows an apple tree in an orchard

There are two ways to think about money. It helps to understand both if you want to be comfortable financially.

Balances. Balances are what we have: the number on our investment statement or bank account, our 401(k) value, or what our Roth IRA is worth. Some think a certain total is required in order to retire, to be financially independent, or to meet some other goal.

Flows. Flows are the income and the outgo, month by month or year after year. These include recurring items like paychecks or Social Security coming in, travel expenses or utilities going out.

While these terms certainly work, one of our favorite analogies is the orchard and the fruit crop. The orchard is like the balance; it’s what we own. The fruit crop is the flow. We like to say that if the fruit crop is big enough to live on, we don’t need to worry what the neighbor would pay us for the orchard.

What does this mean? That once we’re ready for retirement, for instance, we pay more attention to flows than balances.

So if Social Security and a pension more than meet your cash flow needs in retirement—if the flows run a surplus—you might feel comfortable financially even without a fortune in balances. On the other hand, if you spend more than what’s is coming in, you may feel financially stressed no matter what your balances are.

One of the key elements of our work for you is turning balances into flows. We think about the size of our retirement accounts all throughout our working careers. But in planning for retirement, we like to figure out how much cash flow can come out of those retirement balances. In other words, how big of a fruit crop could your orchard deliver?

Clients, if you would like to talk about your balances, flows, orchard, or fruit crop, please email us or call.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

Investing involves risk including loss of principal.

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Money Two Ways: Balances and Flows – 228Main.com Presents: The Best of Leibman Financial Services

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More Lessons from Moneyball

© Can Stock Photo / findog822

Michael Lewis’s book Moneyball turned 16 over the summer. In 2015, we wrote about the contrarian lessons we noticed in the Moneyball movement. The Oakland A’s won by using data to make roster decisions, favoring things like on-base percentage over batting average. Then, after the rest of the league adopted the A’s process, the 2015 World Series champion Royals won by bucking the trend and not following along.

We’ve found another lesson within Moneyball that applies to us—and you. Oakland A’s general manager Billy Beane rarely watched the product he helped put on the field to see how it performed. This may seem unusual (who wouldn’t want to watch baseball as part of their job?), but Beane had his reasons.

In a 2014 interview for the Men in Blazers podcast, Beane explained that he didn’t watch games because he did not want to do something about it in the heat of the moment. “When I watch a game, I get a visceral reaction to something that happens—which is probably not a good idea when you’re the boss, when you can actually pick up the phone and do something.”

Beane continued by saying doing something “probably isn’t logical and rational based on some temporary experience you just felt in a game.” This has meaning to us.

We all know that the market goes up and down, and we don’t find watching the ticker each second of the day to be helpful. Like Beane, we’ve strategically built our portfolios for performance over the long term (no guarantees), and we’re willing to ignore a hiccup from a star on occasion.

Like Beane, we can remove ourselves and our initial emotions from the equation. Then we can focus on only the moves to better our “team” and its goals in the big picture.

Clients, if you’d like to talk about this, or anything else, please email us or call.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.