What factor adds or destroys value in your financial portfolio the most? Global markets? Currency strength? Interest rates? No! The major contributor and destroyer of value is YOU!

Neville got a skilled financial planner to help him create a financial strategy that allocated a portion of his income to lifestyle assets (family home and cars), some to accumulating investment assets to sustain his future lifestyle, some to protect his lifestyle, and some to spending on his lifestyle today. There were trade-offs between them.

Imagine that 3 months after designing and implementing his plan, Neville fell in love with a new vehicle (costs as much as a house) and bought it. He allocated more money to his lifestyle asset slice, reducing the investment asset slice and changing the balance in his strategy.

Ideally, Neville should have first reworked his strategy and made adjustments to his game plan. He may have found that the easiest way to afford the vehicle was to delay his retirement by 2 or 3 years. If he didn’t understand the trade-offs, rework the plan, and make the adjustments, he might eventually say: “That rotten investment performed poorly and now I can’t retire. It’s that stupid financial planner’s fault.”

However, his choice to buy the vehicle had more impact on his financial plan than the investment performance.

Andrew retired wanting to maintain a particular lifestyle. His portfolio needed a real return (above inflation) of 4% to sustain this lifestyle. This meant introducing asset classes that are volatile in the short term into his portfolio.

Imagine that after 12 months, a statement showed that his investment value had dropped due to a temporary market cycle. He should ideally leave his money in place and allow the pendulum to swing the other way so that his portfolio could produce the goods for him. But instead, he panicked, pulled his money out, and put it into the bank.

The next year, the market pendulum swung (as it always does) and the portfolio that he got out of grew by 12% above inflation, while he earned 1% below inflation in the bank. In a well-diversified portfolio, the market swings represent a temporary paper loss that will be recovered if he just sticks to the strategy.

Disinvesting at the bottom of a market cycle did more to permanently destroy value in his portfolio than the temporary downward market cycle.