Developing a Family Investment Philosophy

What emotions does the phrase “investment philosophy” evoke for you? A sense of confidence and clarity? Or perhaps fear, confusion, or shame?  

As a financial therapist and financial planner, I know there is not one answer to this. And if you are in a married or long-term relationship, the possible combinations are nearly endless. 

Working with many couples has taught me a lot about how different the reactions to investing can be. One nearly universally true constant is that spouses want positive outcomes for their families now and in the future. 

However, families are unique in their approach to achieving this via investing. I generally observe these three basic patterns couples assume:

1. Both partners avoid the topic and think about it as little as possible.
2. One partner thinks about it and makes the decisions, while the other trusts their partner.
3. Both partners are informed and work collaboratively together on their investments.  

Which of the above investing patterns do you and your significant other have? 

In this article, we’ll explore how developing a family investment philosophy can be part of fostering financial intimacy. 

Every Family Has an Investment Philosophy

When you think about your family, what experiences did you have talking about investing? Before you think that wealthy families have this down, they don't. I have talked with plenty of wealthy families that lack a clear investment philosophy. 

Some families never talk about investing; this can be because of a lack of knowledge, experience, or cultural norms. Uncertainty and ignorance lead them to not invest their money. 

Other families may talk about investing but in vague and confusing ways. They may add language that makes investing seem dangerous, difficult, or very risky, which can lead to haphazard, inconsistent approaches to investing. 

A few families talk openly about investing, sharing what they know and acknowledging what they don’t. They are open to exploring and learning more about investing. They talk about important lessons learned, which leads them to take a thoughtful, methodical approach with a clear investment strategy.  

Take a few minutes to reflect and maybe even journal about how your family approached investing. 

In my family growing up, there were no conversations about investing. I didn’t hear words like stocks, bonds, mutual funds, asset allocation, portfolio rebalancing, or market conditions. Neither of my parents had much interest in investing; my father had a pension through his union as an electrician, so he didn’t think much about investing as he trusted the pension would provide for his retirement.

Developing a Family Investment Philosophy Can Be Like Learning a Foreign Language

Working with clients in Therapy-Informed Financial Planning™, part of my role is as an investment advisor to share best practices for investment management. I have come to appreciate just how important a person's emotional experiences are in understanding their approach to investments. Emotions teach us what feels comfortable and uncomfortable. 

As a general rule, people don’t like to feel emotionally uncomfortable and at times will go to great lengths to avoid discomfort. However, avoiding the uncomfortable can lead to many unintended consequences for long-term financial security. 

When working with clients to help them develop their family’s financial philosophy, the first step is expanding their vocabulary about the range of investment options available, what different investing terms mean, and how they relate to each other. The world of investing has its own terminology that can be equally as hard to learn and understand as a foreign language. This discomfort with learning the language of investing is what stops many people from paying attention to their family investment philosophy. 

Beyond the investing jargon lie beliefs about how investments work, which shape your intentions and actions. For many people, their investment belief system has not had a chance to fully mature and develop. In this way, it follows patterns of moral and spiritual development: we first learn from others before we come to our own conclusions. We are also coming to believe in something we do not yet fully understand, even with our best attempts. 

Continuing to Learn and Reevaluate Investing

The first lesson I had in investing started in tenth grade. I don’t remember much outside of picking some companies I liked and knew, looking up their stock ticker in the newspaper, tracking the change in price over six weeks, and graphing it. There was no additional information about the role of efficient markets or the range of investable assets, which are a core part of investment philosophy. 

I didn’t think much about investing until I began working as a firefighter. We had Clark “the investment guy” come by and help us set up our 403(b) accounts. Some of the guys I trusted encouraged me to work with him, so I did. Setting aside $300 a month felt like a big deal then. Clark taught me about the nine-square style box for investing and diversification. I was starting to understand the basics of investing, but how it all worked was still a bit foggy. I didn't even know or understand there could be real research behind the investment recommendations.

Slowly but surely, I was learning about the world of investing — mostly by trusting what others were teaching me. Until we become informed and learn to think for ourselves about investing, we are reliant on others and what they teach us. 

My next big step was going to work at Vanguard Mutual Funds. I had never heard of the company before I started working for them, only to learn they are one of the largest mutual fund companies in the world. Like most big companies, they have internal training to help you understand the company and the products they offer. While I was getting this experience, my curiosity and intellectual rigor increased around investing. I learned the importance of index investing and the impact of fees on returns. This challenged the previous investing lessons I received in high school (focus on individual stocks) and as a firefighter (asset allocation matters, but I heard nothing about investment fees).

Then came a long period of not worrying or learning about investing. My basis for understanding the investment world was pretty well established, and the financial planner my wife and I worked with followed a similar philosophy. His investment advice came from what he learned at Vanguard.  

As I began to focus on couples therapy and financial therapy, I would learn about other investment companies and approaches from time to time, but they did not seem relevant to the work I was doing. 

The next evolution of investment understanding came through providing Therapy-Informed Financial Planning™ for clients. I am revising my learned beliefs about investing and what will have a positive impact for my clients. One part of financial therapy is looking at beliefs about how money works at a high level, after which my clients and I dive deeper into specific aspects of the financial world including stock markets, real estate, risk tolerance, investment management, and family business — all of which impact the way a family approaches long-term success.

Through both maturity and higher education, I now see that every investment broker leads with claims about why their investing philosophy is the best and you should follow suit. (This observation was unavailable to the less-informed, firefighter version of myself.) 

The big question is “What is the basis of a financial institution's claims about their investment opportunities?” Some of us like to use experience, faith, and personal relationships to inform our investment decisions. I certainly have over time. 

There is another way to make informed investment decisions — through science. Just like learning the science of psychology has led me to adopt attachment theory and interpersonal neurobiology, studying finance through an academic lens has led me to appreciate modern portfolio theory and the efficient market hypothesis. After understanding these principles, I have let go of the burden of trusting friends, family, or my own intuition about what will happen in the investment markets or my portfolio.

Coming back out of the weeds of investments and analysis and back to the big picture, you have a family you want to provide for in the future. You are trying to figure out how to build family wealth. One efficient strategy is mindfully selecting the types of mutual funds and ETFs you pick for your retirement and taxable accounts. 

The Science of Investing

Most of us will not dedicate our lives to understanding the world of investing. We have better things to do with our time like pursue our dream jobs, enjoy vacations with family, go to Little League games, etc. 

We can invest confidently when we know there is a scientific method behind our approach. When I started investing many years ago, I had no real appreciation for the scientific method and certainly not how it would be applied to the world of investments. Now, I can not imagine using investment strategies not shaped by the scientific method. 

The Value of Asset Allocation

Asset allocation is how you divide your investment dollars among various asset types, such as stocks, bonds, real estate, etc. Your asset allocation is your specific mix of these holdings. Each category has a different expected rate of return over the long run as well as a different level of risk. These expected differences should guide long-term investing to meet financial goals

Becoming a Transformed Investor

I am a transformed investor, and you can become a transformed investor too. It is a journey of growth, learning, reflection, and reevaluation. As you mature in your understanding of investing, the way you approach your investment goals will also change. 

Transformed investors accept and acknowledge the complexity of investment markets. They allow themselves to stay focused on long-range goals. Novice investors don’t know what information to pay attention to and what to tune out, which is why I am so excited about the forthcoming documentary Tune Out the Noise. This film covers the founding of Dimensional Fund Advisors, which backs its investment strategy with science and data analysis.

What A Financial Therapist Has To Say About Investment Philosophy

As humans we have belief systems about many things: the nature of humans, God, politics, gender, social class, race, what is the best sports team, and whether or not pineapple belongs on pizza. The diversity of views and beliefs makes the world an incredible place to live and sometimes complex to navigate. Belief systems (whether or not we acknowledge them) play a role in how we make financial decisions, so unearthing and understanding them is crucial to healing our financial wounds.

Financial belief systems can sound like this:

Because I am a woman, I need to spend $_____ on hair, makeup, clothing, etc. 

Because I am a Christian, Jewish, Muslim, Buddhist, etc., I use my money this way.

Because I am rich, middle class, or poor, I use money this way. 

Because I am a Republican or Democrat, I use money this way and not that way. 

Belief systems based on our personal experiences and exposures shape the way we approach money and pursue family values.

I invite you to reflect on some of these questions regarding your belief systems about investing:

• What specific circumstances shaped and influenced your knowledge and perception of investing?
• What would it be like to let the financial sciences shape your beliefs about a diversified portfolio and investing?
• What beliefs about yourself, others, and money would you have to give up for your investing life to improve?
• What would you need to start believing about yourself, others, and money for your investing life to improve? 

Coming to our own integrated head, heart, and gut positions about investing and our other belief systems is an act of maturity and courage. We will inevitably be met with not knowing why we hold certain beliefs and questioning whether it makes sense to continue to hold those beliefs. We will need the courage and likely a few guides to gain clarity on why we invest the way we do. 

Therapy-Informed Financial Planning™ can help achieve your family's goals for future generations. 

Let’s find a time to talk about your life, relationship, and investment needs. 

Schedule a free 30-minute consultation today. 

Wishing You Healthy Love and Money,
Ed Coambs

MBA, MA, MS, CFP®, CFT-I™, LMFT.