12 Principles of Investing

Principles guide our behaviors even when we aren’t aware of them. They are fundamental truths, consistent across time, and heavily influence our choices and behaviors. How this applies to our money and personal finance is not all that different from how it applies to our behaviors.

In the following paragraphs, I will define principles, explain how they differ from values and belief systems, and offer suggestions for how using them can help your finances and family thrive in a new way.

Our mission is to help you connect your money with your purpose, and after decades of working with individuals on this front, we’ve found that principles, money, and behaviors are very highly connected. So, let’s dive in.

What are Principles and Why Do They Matter?

Here are a few principles of personal finance you may have heard:

• Spend less than you earn / Live within your means
• Money doubles based on the “Rule of 72”
• There is no free lunch

A principle is a “comprehensive and fundamental law, doctrine, or assumption.” Said another way, principles are “laws or facts of nature that explain how something works or why something happens.” Principles can also take on a moral bent, defining right versus wrong.

As observations of natural law, principles will work for or against you whether you are aware of them or not. Whether defined or not, we all have a core set of operating principles. When we find ourselves in a jam, we default to these principles. It’s how we restart and get going again.

So, it's beneficial to become familiar with the fundamental truths operating in the system you intend to join. Understanding the laws in place allows you to successfully avoid pitfalls and turn from fighting natural law to harnessing it to fuel your passion and vision.

Money is no different. It has its own set of principles and laws that govern the way it compounds or erodes. Where we find success is in helping individuals understand these principles and blend them with principles of their own to create a more meaningful lifestyle.

Because principles do not change, they become an effective navigational tool in the midst of a crisis.

At Arkos, we have twelve governing principles to help families thrive across generations.

These principles help our clients navigate the anxiety, difficult decisions, and uncertainty of both up and down markets. They empower both advisor and client to trade reactionary decisions for purposed and intentional choices that lead to good fruit in the end.

How Do Principles Differ From Values?

A common misconception is that principles and values are interchangeable terms. While principles transcend time and often even culture, values can change over time and reflect the personal nuances and experiences of the individual, family, or group. Both are key to understanding how to align your finances with your purpose and vision.

A value describes something that is “intrinsically valuable or desirable.” What has value to one person may not to another.

The key is being very clear when defining what is valuable to you and the lifestyle you choose.

In finance, value describes the “price or cost of something.” Values are used to describe the “usefulness or importance” of a thing. On a personal level, a value is “a strongly held belief about what is important or acceptable.”

We value what we esteem. David York, an estate attorney based in Utah, describes a personal value as

“something that has worth to you; something that you strive toward and are willing to pay a price to obtain.”

Values influence our priorities and the choices we make. Here are a few examples of values:

• Excellence
• Productivity
• Generosity
• Integrity

In his book, The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money, Ron Lieber writes, “every conversation about money is also about values.”

Before having conversations about the dollars and cents, it often behooves a couple, family, or individual to understand the personal values motivating their financial decisions

Oftentimes value systems derive from childhood experiences or personal life lessons learned along the way. Many times, the personal values of one individual exist in tension with those of another. A coworker who values connection may at first have trouble relating to a coworker who values productivity and independence.

By understanding the values that drive our choices and behaviors, we can better communicate with, relate to, and work alongside those around us. We've created the Wealth Languages assessment to help individuals understand how their personality relates to their money.

Why Do Principles Matter?

Principles matter not only because they impact your life but also because they directly influence your finances and investments. Aligning your money with your purpose starts with living by principles and defining your purpose.

Often, we find the easiest change for individuals to make is to learn to use money as a tool rather than an object of value. Money is the single thing we all need and focus on in our daily interactions. So, it comes as no surprise that money is typically one of life’s biggest struggles regardless of one’s net worth.

Before flying to a foreign nation, people often research the basic laws governing the area in order to successfully navigate through their trip. They may also want to know the customs and culture of the nation to better understand what the society values. Knowing the laws keeps them safe and knowing the values allows them to respect, honor, and better communicate with the host nation.

When was the last time you reviewed the laws, principles, and guiding values of money?

Understanding the guiding principles operating in the world of finance allows an individual to more successfully navigate the traps and pitfalls that cause financial hardship and ruin for many. One of our principles at Arkos is “Keep it simple (steward).” Many times, in our industry, the higher the net worth the more complex the investment conversation becomes. With complexity often comes risk and a price tag that eats away at returns. Simplicity, while not sexy, often saves our clients substantially on fees and allows them to avoid risky investments that cause more headaches than produce value.

The core principles of money remain the same regardless of net worth.

How we emotionally react to changes in our net worth and finances differs dramatically. Coach John Wooden is famous for winning 10 national titles in 12 years. He is also famous for starting his elite recruits with the basics: how to tie their shoes. He understood the importance of mastering the fundamentals and reinforcing basic principles before chasing a national title. No matter how many titles they won, the basics stayed the same. The fundamental principles did not change. And his commitment to both ensured continued success.

We empower our clients to understand that the principles governing their personal finances are similar to those that guide their life purpose. With our process, we help individuals make informed, intentional decisions with their finances and purpose in mind. We walk them through the appropriate investments, strategy, and communication tools needed to align their money with their purpose and build a lasting legacy. Without principles, the best intentions become bankrupt in the midst of emotions and crisis.

Principles in Action

We use twelve guiding principles at Arkos to help the families, couples, and individuals we serve navigate the investments, strategy, and communication tools necessary to build a lasting legacy.

Principles guide the advice we give and stories we tell to help families thrive. Let’s look at a few examples.

When it comes to investing, people are often driven by “the cycle of anxiety:”

A common financial principle is “buy low, sell high.” Human emotion, however, motivates us to run from the bear and fear missing out on the party at the top. These emotions contradict a fundamental law governing markets. When crisis comes, which will ultimately guide your behavior? Will you choose to run or hold ground and invest wisely through a downturn?

Two principles guide our investment strategy: “Evidence, Not Opinion” and “Have a Written Plan.” News agencies are a great place to find opinions. They make money by selling ads, not giving advice. They are financially motivated to keep viewers’ eyes glued to the screen, and dramatic headlines sell. The wilder or more polarizing the opinion, the more likely they are to keep people watching.

How do you navigate the noise?

By rooting our investment philosophy in fact-based evidence rather than opinions, we help guide our clients through emotional or reactionary decisions to arrive at solutions that provide a positive impact.

We also encourage our clients to have a written, strategic plan for their wealth. During times of crisis, like a market downturn, referring back to the personal goals and strategic plan you established helps clear the emotion and gain perspective. You are more likely to make better decisions when short term fear or greed are not in the driver’s seat. It also helps having a process in place that shows you all the positive things you’ve accomplished along the way. Part of living a wealthy life is maintaining a forward, positive motion.

Knowing the laws of the land (principles) does not discount or eliminate the very real emotions that arise during uncertainty. A sailor in a storm uses a lighthouse as a guide but still must navigate the emotions that arise during the storm. Knowing your personal risk tolerance is crucial to ensuring the emotions do not override sound judgment.

What About Designing a Purposeful Legacy?

What principles might guide a couple or individual as they navigate the very real challenges of designing, utilizing, and distributing their estate? Two common principles we use are “Deliver Blessings” and “Disinherit the IRS.”

Death and taxes. You have a 100% chance of being generous upon death. The question is: Who will benefit from your wealth? Who will you choose to impact? If you have an estate valued above the current exemption, the IRS is in the running to become one of your beneficiaries. Disinheriting the IRS leads our clients away from the template estate plan towards one rooted in intentionality, generosity, and purpose. While you may still choose to keep the IRS on the payroll, the key is that you chose. The template, estate attorney, and advisors took a back seat to your principles, values, and personal convictions as steward of your wealth.

Why deliver blessings? Author James E. Hughes, Jr. notes that 80 percent of trust beneficiaries view their trusts as burdens and not blessings. Why is this the case? Estate plans are often seen as documents designed to control the flow of assets rather than relationships designed to benefit others. Who, rather than what, becomes the driving question of the estate process when the aim is to deliver blessings. By choosing the guiding principles of delivering blessings (rather than avoiding taxes), the design of the estate is first determined by the financial stewards who best know the needs, capabilities, flaws, and strengths of the family, friends, and the organizations they desire to bless. The estate attorneys, accounts, and advisors can then fill in the technical, tax, and financial gaps needed to make it a thorough strategic plan.

At Arkos we aim to be different because we understand that wealth is more than investments. In our relationships we seek to provide tools to individuals and families that are lasting. We understand the important role that principles have in helping individuals achieve their goals. We incorporate this into our investment process as a means of making a deeper and lasting impact.