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November 30, 2009 |
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Zen And The Art Of Financial Advice |
(Dow Jones) Spencer Sherman, the co-founder of Abacus Wealth in Sebastopol, Calif.,
and author of the recent book "The Cure for Money Madness," has long
counseled his clients to build wealth by living in the present and
shedding the financial hang-ups that slow them down. His advice, which
might be called Zen money maintenance, is often unconventional—though
it's rooted in the sensible investment strategy of buying and holding
diversified index funds.
He wasn't always that way. "I started out thinking my MBA
from the Wharton School made me a genius," he says. "I thought I could
pick stocks and beat the indexes, and by 'doing something' for my
clients I could justify my fees. So I was constantly maneuvering."
Eventually he realized what many studies have shown: After
paying broker fees, stock pickers don't consistently beat passive index
funds. "I had to let go of trying to look good," he recalls. "And I'd
just have to take it on the chin if my clients left me. But they
haven't left me."
They stick around, presumably, because Sherman's epiphany on
passive investing brought him greater clarity on how and why money
makes people (and their financial advisers) so crazy. Now, instead of
obsessing over price-to-earnings ratios, he helps clients feel
comfortable with what they already have. "I have had so many clients
tell me that if they only had more money everything would be OK," he
says. "I tell them that's a fantasy."
It's not that Sherman doesn't want his clients' nest eggs to
grow. Rather he believes that when people are content, they will spend
less, save more, and ultimately have more.
"I start by asking clients to look at their earning
potential," he says. "If you earn just $50,000 a year, over 20 years
that's $1 million coming in. You're going to save some of that, maybe a
lot of that. It's your choice.
"Then I help people imagine how they can have today what
they think they want in 20 years. For example, I had a client who said
her dream was to have a personal chef when she retired. I asked her how
she could make that happen right now. Well, she found out you can hire
a personal chef pretty cheaply in India. So she moved to India. Changed
her life."
Another client, a single woman whose children were grown,
envisioned owning several vacation homes. "She wanted a place on the
coast, a place in the mountains, one in the city," says Sherman. "But
she had probably $1.2 million in net worth, and she was living off the
money. So it wasn't enough. Even if we could make it all happen, her
entire portfolio would be in real estate, and she'd have to forage for
food in her backyards. But the more I talked to her, the more she
complained about all the headaches of taking care of her current house.
I told her, 'You need fewer houses, not more! Instead of buying more
places, why not sell your house and try out a few different rentals?'"
The client did just that—and convinced the buyer of her
house to let her rent the in-law apartment in the back, so she didn't
even have to move. Meanwhile, she rents two other homes for parts of
the year. "It's allowed her to focus on what's really important in her
life," says Sherman, noting that the woman is now working part-time as
a caterer, preserving her investments, and enjoying vacation homes she
doesn't have to worry about.
"If I can get clients to feel a sense of sufficiency right
now, I've succeeded," says Sherman. "As financial advisors we've
trained people to constantly imagine this wonderful future date. But in
fact, you have the greatest opportunity for freedom and happiness in
this moment."
Copyright (c) 2009, Dow Jones. For more information about Dow Jones' services for advisors, please click here.
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CONFERENCES
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