Financial Planning’s Paradox: Balancing Riches and True Wealth
In financial planning, success is typically measured by one primary metric: asset accumulation. Traditional financial advisers emphasize portfolio growth, rates of return and retirement savings, assuming that the more money a person has, the better their future will be.
However, this narrow focus can lead to an unintended consequence — clients who accumulate riches but fail to achieve true wealth.
The paradox of financial planning is that, while riches — defined as having a high net worth — are important for financial security, they alone do not guarantee a fulfilling life. True wealth encompasses having enough: enough time, family, love, friendships, hobbies, purpose and financial security to support a well-lived life.
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True strengths and complementary traits
This unbalanced approach reflects a broader misunderstanding of strengths and decision-making. Many people believe their strongest trait is their greatest asset. However, as the Harrison Paradox Theory demonstrates, true strengths emerge from balancing complementary traits.
For example, confidence in one’s opinions is valuable, but without openness and reflection regarding other perspectives, it devolves into dogmatism, leading to poor decisions and damaged relationships.
Similarly, financial planning must balance the drive for wealth with an understanding of lifestyle needs to create a truly effective strategy.
This pattern of imbalanced thinking is not unique to financial planning. Many industries have mistakenly focused on the wrong metrics, leading to suboptimal outcomes.
A prime example is Major League Baseball’s outdated approach to player evaluation, which was transformed by data analytics, as depicted in the 2011 movie Moneyball.
Just as baseball teams once relied on flawed statistics that did not correlate with winning, financial advisers often prioritize asset accumulation without considering the true objective: achieving genuine wealth.
Riches vs wealth: Understanding the real goal of retirement
One of the most significant misconceptions in financial planning is the belief that being rich and being wealthy are the same. In reality, these concepts are quite different.
Being rich entails possessing a substantial amount of money or assets — high net worth, a large investment portfolio and significant cash reserves. However, an individual may possess a lot of money and not experience wealth.
Being wealthy means having enough — enough money, but also enough time, meaningful relationships, personal fulfillment and the freedom to enjoy life. True wealth is about balance, not excess.
The goal of retirement should not just be to accumulate the largest possible nest egg but to create a meaningful and enjoyable life. Without this balance, retirees may find themselves financially stable yet emotionally and socially impoverished.
The paradox in financial planning is the singular focus on asset accumulation
For decades, financial advisers have measured success by portfolio size. The industry prioritizes metrics such as:
These indicators are important, but they tell only part of the story. If financial advisers focus exclusively on these numbers without considering how clients will use their riches to enhance their wealth, they risk failing to effectively serve their clients.
Research has shown that beyond a certain point, increased riches have diminishing returns on life satisfaction without being balanced by a plan for becoming wealthy. This means that simply growing assets without a plan for how to use them effectively can result in clients who are financially secure but personally unfulfilled.
In the same way that confidence must be balanced with curiosity to create true strength, financial planning must balance asset accumulation with lifestyle fulfillment.
A financial adviser who is confident in their investment strategies but not receptive to a client’s personal aspirations may miss the mark, crafting a plan that maximizes returns but neglects what truly matters to the client.
A parallel example: ‘Moneyball’ and the shift in baseball metrics
As mentioned above, the paradox in financial planning mirrors a similar imbalance in Major League Baseball, as depicted in Moneyball. For decades, baseball scouts and general managers evaluated players based on traditional but flawed metrics, such as:
- Batting average (AVG). While once considered the gold standard for hitters, it failed to account for walks.
- Runs batted in (RBI). This statistic is highly dependent on teammates getting on base, making it an unreliable indicator of individual performance.
- Stolen bases (SB). Often used to measure speed, but it fails to account for how often a player is caught stealing, which can hurt the team more than successful steals help.
These traditional statistics were widely accepted despite their flaws. However, Billy Beane, the general manager of the Oakland Athletics, recognized that they did not necessarily correlate with winning games.
The shift to advanced analytics
Beane and his team, using the insights of sabermetrics (a data-driven approach to baseball analysis), prioritized more meaningful statistics, such as:
- On-base percentage (OBP). Measures how often a player reaches base, whether by hit, walk or hit-by-pitch. This proved to be a better predictor of offensive success than batting average.
- Slugging percentage (SLG) and on-base plus slugging (OPS). These metrics account for the quality of hits, giving more weight to extra-base hits rather than treating all hits equally.
- Wins above replacement (WAR). A comprehensive statistic that estimates how many wins a player contributes compared to a replacement-level player.
By focusing on these new metrics, the Oakland A’s built a competitive team despite having one of the lowest payrolls in Major League Baseball.
Applying ‘Moneyball’ thinking to financial planning
Just as baseball had to rethink how it evaluated players, financial advisers and their clients must reconsider how they measure success. Instead of focusing solely on asset accumulation, both parties should adopt a balanced approach that includes appropriate metrics that reflect a client’s overall well-being, such as:
- Quality of life index. A measure of how well a client’s financial plan supports their desired lifestyle.
- Happiness-adjusted savings rate. A balance between saving for the future and enjoying life today.
- Experience-based wealth utilization. A metric that tracks whether clients are using their money in a way that aligns with their values and aspirations.
The paradox of financial planning lies in the false assumption that riches alone lead to happiness. Just as Moneyball demonstrated that baseball teams needed to rethink how they evaluate players, financial advisers must rethink how they measure success.
To learn more, visit my podcast website at HowNOTtoRetire.com.
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
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