A Martini Tale

Many people won’t remember that in 1992 Bill Clinton was elected President of the United States based on a simple phrase, “It’s the economy, stupid.” At the time it seemed that the incumbent George H. Bush was unbeatable, but Clinton campaign strategist James Carville is said to have coined the phrase and it became the central point of the election victory. It focused the campaign as well as the electorate on a clear message. In A Martini Tale I want to borrow from a successful phrase and say if you are looking to achieve wealth and financial independence, “It’s the rate of return, stupid..”

This tale and its message came to me over a dinner shared with friends. My wife and I were at a favorite restaurant with another couple and the husband asked me what I considered the most important variable to financial success. My typical connoisseur of the obvious reply was that you need to have money to invest before you can invest it successfully. However, other than the obvious response, the answer is Rate of Return. At that very moment, the waiter was serving a table next to us what looked like a beautiful, well-made martini. I immediately made the analogy between a martini and financial success. Rate of Return is the gin in the martini while Financial Expertise and Customer Service are the vermouth and olives.

For those that are Martini-challenged I need to set the stage and explain my thinking. If you asked bartenders to describe their favorite martini, I suspect you would get as many different concoctions as bartenders. Some would use vodka, others gin. Some would include olives, others onions. Some would make them with dry vermouth, while others would make them sweet. The combinations are endless as well as the stirring, chilling and types of presentation. There is no perfect martini, there are hundreds, but they all have one thing in common; a good one starts with a quality gin or vodka. Financial success starts with Rate of Return.

I like to think that there are three components to a successful relationship with a financial advisor, even when you are your own financial advisor. The first is Rate of Return, the second is Financial Expertise and the third is Customer Service. In traditional martini terms, Rate of Return is the gin, vermouth is Financial Expertise and olives are Customer Service. The three ingredients are important and no good martini could be made without all three. But which one is more important and if so how would you weigh its importance? Like the martini, the answer is accurate though not precise.

Let’s suppose that one version of the perfect martini had 98 parts gin and 2 parts vermouth. This seems like a reasonable martini for those inclined to imbibe the beverage. In this martini, the gin represents Rate of Return, the vermouth represents Financial Expertise. In this case the gin is more important by a factor of 98 to 2. Let’s reverse the proportions and see what we get. Would anyone drink a martini that is 98 parts vermouth and 2 parts gin? I hope not. However, this is exactly the ghastly type of financial cocktail that most financial advisors serve. They are light on Rate of Return expertise so they overweight Financial Expertise and Customer Service. You get a martini that is mostly vermouth in a beautiful glass that is filled with olives and has very little gin in it. Don’t drink this cocktail. I don’t know anyone that ever got rich because of Financial Expertise or great Customer Service.

You will be far better off finding and hiring the next Warren Buffett, a Rate of Return specialist, than the next Suze Orman or Ric Edelman; Financial Expertise specialist. No offense to either Ms. Orman or Mr. Edelman. Financial Expertise is important and I don’t want to downplay it. It’s important but not crucial to your financial success. Knowing about the intricacies of 529 plans or limits to retirement plan contributions or how you should title assets and the infinite technical questions that financial advisors get are important. Knowing they are available to meet with you is important. Knowing they are un-conflicted in the advice they give and have no incentive to sell you a particular product is important. But if someone is looking to achieve financial success they would be better served hiring an advisor that can deliver the goods rather than an advisor that can package the goods. Hire Rate of Return expertise, even if you need to hire Financial Expertise elsewhere. You can separate the two. Hire Rate of Return expertise, even if they don’t send you a birthday card every year on your special day.

Let me reiterate, assuming you have money to invest, the single most important component to financial success is the Rate of Return you achieve on your portfolio over a lifetime of investing. Don’t let anyone tell you otherwise. It’s important to be blunt in this tale because so much of what people think is important to financial success isn’t, and so much about what people value in their relationship with their advisor isn’t either. It’s the Rate of Return that matters.

I apologize for the way I will end this tale. I am not calling anyone stupid. My purpose is to bring clarity to what matters most and to leave you with a phrase and a visual that isn’t easy to forget. It worked for Bill Clinton, so here goes;

“It’s the economy, stupid.” “It’s the gin, stupid.” “It’s the Rate of Return, stupid.”

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