Small Changes Lead to Big Improvements, If You Know What to Change
About the author: Chris Abts is the President & founder of Cornerstone based in Reno, NV. He helps people to better manage their wealth so they can focus more of their time on what truly brings meaning and fulfillment to their life. Abts is also a best-selling author and TV show host of Redefining Retirement, which airs every Sunday evening at 5:30pm on KTVN Channel 2.
Over the years I have enjoyed playing basketball with my two sons and as a typical dad I would occasionally encourage them to make little changes to improve their game. For my younger son, I would make suggestions to him to change his shooting technique as I knew it would improve his shooting accuracy over time. But each time I would make a suggestion, he would respond with something like, “Dad, the way I shoot the ball is just fine. Besides, it probably wouldn’t make that much of a difference anyway”.
But just last night, while he and I were playing basketball, I noticed that he had finally changed his shooting technique for the better, so I asked what happened. He said his coach noticed his technique and recommended he change it. He said it took a little while to get used to it, but he acknowledged that this technique has really helped him to improve his game. As a dad, I said, “That’s great son, but why didn’t you make this change sooner?” He said, “I know you recommended I make this change a long time ago, but I didn’t really think it was going to make that big of a difference.”
This reminded of a conversation I had with a really nice couple who just became clients of Cornerstone. They are in their mid-fifties and recently retired. They have pension income and they also have a couple million dollars saved up. They didn’t really need this money for income, and they came to see us because they felt they were not getting the investment results they had been expecting.
Over the years, they had met with three different financial professionals who had helped them to invest their savings into things like mutual funds, stocks, bonds and annuities. Two of these advisors were from big name brokerage firms, and one was with their local bank. In all three situations, the same thing happened, this couple got a sales pitch, and they ended up investing their hard earned money into some investments that, at the time, sounded like wise decisions.
But without realizing it, each time they did this, they were doing the same thing they had always done. They were listening to sales pitches. Unbeknownst to them, they were putting their hard earned money into investments that didn’t really meet their needs and desires, and when it came right down to it, resulted in a portfolio of investments that unfortunately didn’t really make any sense at all. Plus, they were paying a significant amount in fees and not getting much in return, without any real strategy as to how these investments were supposed to work together to help them to achieve their financial goals.
When they came in to visit with us, we helped them by running an analysis on their current investments. What they learned was they were earning a low rate of return for four reasons. First, their risk exposure was not in line with their risk comfort level; second, there was significant overlap in the investment in their portfolio; third, their fees were much higher than they realized; and fourth, their selection of investments created inefficiencies due to improper asset allocation.
At the same time, we showed them how much risk they should be taking based on their risk tolerance and how to hold different asset classes in a much more efficient manner. Not only will this increase their return, but it will also reduce their fees. I knew they grasped this when they said, “Chris, we’ve been watching your TV show for years and until now, we never really understood how much these seemingly small things actually add up to make such a big difference. (For a great example of these “small things that make a big difference” watch my TV show, Redefining Retirement, this Sunday, December 3rd at 5:30pm on KTVN Channel 2.)
Just like how my son was finally ready to make a small change that will lead to big improvements in his performance on the basketball court, this couple was finally ready to make the small changes in how they invest that will lead to big improvements in their investment performance.