An investment strategy should be tailored to the individual’s money personality - not to a firm's investment models. Money is not the client; people are.

1. Earning “Enough”:
A Rational Approach to Investing
A recurring theme in our profession relates to how
investors might variously express their
expectations for portfolio growth, or rate of
return.
Behavioral finance, a relatively new science of
human behavior, has identified a number of
money personality types. While there is some
overlap between the types, and an investor may
exhibit behaviors attributable to more than one
Joel Framson & Eric Bruck, type, we can find enough common ground to
Principals
divide the money personalities into two camps.
"Mastering the • The “I’ll never have enough” camp. For
complexity this group of investors, expectations are
of wealth
always high and you can never earn
to create and sustain
enough. Behavioral finance professors tell
a better life
us that money is a status symbol for this
Silver Oak Wealth Advisors, LLC type – it is discussed at cocktail parties and
~~~ clubs; it is a lifelong pursuit and a quest
that may never be completely satisfied.
• The “my money has a purpose” camp.
Click here to learn These investors are generally family
more... stewards for whom money translates into a
means for taking care of oneself and loved
ones. Certainly there is a desire to
accumulate more, but there is a tempering
factor of not risking a prudent level of
security. This group generally is amenable
to defining reasonably attainable goals and
calculating a rate of return that will be
sufficient to realize those goals.
These two camps display fairly bright line
distinctions in their expectations. From our

2. perspective in our roles as wealth advisor and
money manager, it is critical that we know which
camp our clients fall into. Only with an
understanding of each client’s money
expectations can we establish a strategy to help
them succeed. Yet a fantastic strategy for one
camp may almost by definition be an ineffective
strategy for the other camp.
One size never fits all
As we meet with new clients, we have the
opportunity to explore their money personality.
By analyzing their existing portfolio, we can
determine whether their prior advisor attempted
to match their money personality with their
money type. Too often, we find that the two
have been out of sync. Large national money
managers (and some local independents) have a
one-size-fits-all approach to constructing portfolio
models. They believe that four or five static
models cover all the risk/return options required.
Similarly, other advisors might primarily utilize
only a single mutual fund family or investment
house, which they require all clients to use. In
each case, these money managers tout award-
winning stock research or Nobel Prize winning
theories to justify their asset allocation.
However, from our analysis of those portfolios and
getting to know the client, we have found that
the advisor typically has failed to individualize
the portfolio based on a true understanding of the
client’s expectations.
There might be any number of reasons to explain
why this is true. Often, it is the lack of using a
financial planning approach as a starting point to
identify the goals. Risk “tolerance” is cursorily
examined, but risk “capacity” is ignored. Another
explanation might involve the typical asset
allocation approach of large brokerage firms who
assume that all investors will be better off with
the ubiquitous definition of risk and return based
on textbook concepts, without regard for the
money personality of the client.

3. So let’s distinguish between what the textbooks
teach about risk and return and what behavioral
finance reveals.
Are markets really rational? More art than
science
First, here are the basic tenets of Modern
Portfolio Theory (MPT), a Nobel Prize winning
theory premised on the “efficient markets
hypothesis.” Risk and return are considered to be
both static and predictable, based on history.
Premises include:
• Investors behave rationally
• Investors seek to optimize their returns
• Investors are the market
• Investment returns follow a statistical
“normal” (predictable) distribution (bell-
shaped curve)
• (Historical) standard deviation and
correlation primarily define portfolio risk
• Markets are efficient and will always return
to equilibrium
However, behavioral finance studies stand in
contrast to these tenets, having concluded that
either many of these tenets are not true or they
are not particularly applicable to individual
investors. In contrast, behavioral finance tells us
the following:
• Investors, at least as often as not, behave
irrationally, acting on emotion.
• Investor’s perception of their own risk
tolerance changes over time, especially under
different market conditions
• Investors do not view upside and downside risk
in the same way. On the downside, they are
focused on losing out on specific objectives.
Perception of risk is viewed in the context of
goal attainment
• Market returns are often not “normally”
distributed. They exhibit skew and/or “fat

4. tails” (extreme events) which greatly impact
investor goal attainment and perception of
risk.
Extreme market behaviors occur more frequently
than is statistically predicted. Historical inputs
that are used to calculate MPT (standard
deviation, expected returns, correlations) are not
static, fluctuate over time and are not predictive
of the future.
For individuals, risk is much more than a
historically based statistical measurement
(standard deviation). Risk for individuals is an
emotional condition and includes fear of a bad
outcome, fear of loss, fear of underperforming. It
is likely that the biggest fear people have is the
fear of failing to achieve a financial goal – not
being able to retire, not being able to remain
retired, not being able to assist their children or
parents, and fear of running out of money.
MPT holds that (statistical) risk dissipates over
time; that any period of bad market returns will
eventually be restored to equilibrium over
(enough) time. Herein lays the key. Individuals
typically do not have enough time for their
portfolios to recover during a particularly steep
market decline.
Minimum Acceptable Return (MAR)
Individuals should focus on a minimum
acceptable return (MAR) which is required to
accomplish their goals. This is not a new concept
for those of us who provide financial planning for
clients. The financial planning process is an
essential tool for us in helping to define one or
more MARs as we assist clients to reach their
goals. The MAR is a concept that is perfectly
suited to the group of investors who fall into the
second camp defined above - the “my money has
a purpose” camp.
The clients of Silver Oak Wealth Advisors, LLC
typically fall into this camp. During our Discovery

5. meeting process, we uncover a client’s money
personality. We carry out our wealth
management process to enable us to create
portfolios that would succeed in delivering the
MAR based on our understanding of each client’s
risk comfort level, capacity for carrying financial
risk, and personal definition of what it is about
money that is important to them and their family.
Through this financial planning process, we are
able to determine “how much is enough” for each
client – in other words, when we understand a
client’s MAR, we simultaneously understand the
maximum level of risk a client’s portfolio must
assume to achieve it.
This is a rather unique orientation, but one that
we truly believe captures the essence of our
firm’s effectiveness in managing and protecting
the wealth of the clients we serve.
Best personal regards,
Joel H. Framson, President
Eric D. Bruck, Principal