Financial Planning Season

By Brad Thomason, CPA


We are now in the midst of the 60-day period when financial planning is most likely to be a top-of-mind topic.  The last month of the year sees us all looking at how we did.  And the first month of the new year has us scratching our heads over what we ought to do for the next round.

To some extent, I’d say no one is immune from the pull of these two questions.  Which is a good thing, I think.  Even those with carefully-crafted, closely-monitored plans need to take stock every now and then to adjust expectations away from the suppositions they initially used, to the reality that has already occurred.  Likewise, the steps that were right for last year are not necessarily the ones to repeat going forward.  Addressing those things via a volitional exercise is, in my view, almost always categorically better than ignoring them (whether by unmotivated neglect, or active fear of what you might find…).

Below we’ll discuss several points to ponder as you go through this season of contemplation.

1.        If performance this past year fell short (and unfortunately, it probably did given the stock market’s lousy showing, and the low rate environment), there are 2 questions to ask:  How does this impact the overall plan?  What do I intend to do about it?

2.       Stocks, Bonds and Mutual Funds do NOT make up the entirety of the world of investment choices.  They are the standards, and most people have at least some of them.  But they are by no means the only options.  Widening your view could help to illuminate options that you may not even known about, and which might be a better fit for your goals than what you already have.  If you don’t know where to look, ask: we’ll be happy to point you in the right direction toward some of the more common ones (contact us).

3.       Speaking of what you already have in your portfolio, is it a good fit for your goals and risk tolerances?  In the new year we’re going to be rolling out a service associated with what we’re calling “P3” the Personal Portfolio Project. One of our lines of business is designing custom investment portfolios for professional and institutional use.  Even though doing so would be cost prohibitive for the typical individual investor, we decided to develop a review process that incorporates our knowledge in this area, for the benefit of individuals.  We can review your current portfolio (or a planned hypothetical portfolio) and give you feedback on how well it matches up with your goals, and some of the major factors that will impact its performance.  All at a very low cost.  To learn more and get on the special mailing list for P3, click here.

4.       The points above assume you have a comprehensive financial plan already in place.  If not, or if the one you have is too basic to be useful, consider a Retirement Income planning engagement.  We methodically work through all of the major factors likely to have an impact on your financial life, and plot them out in great detail for decades into the future.  Our goal is to help clients to have a clear path for converting their life savings back into an ongoing stream of income once they retire.  As with the P3 review, it’s essentially a corporate level service that we’ve adapted to the individual market.  You can find more info on a separate section of the website by clicking here.

5.       Finally, if you have already retired, you really can’t wait to give these items attention.  Poor performance in just one year can lead to a downward spiral that is very difficult to reverse once it gets underway.  Failure to achieve the necessary return levels can lead to an increase in the rate of capital depletion (we assume your expenses didn’t stop just because the market decided to take the year off…).  Increased depletion increases the risk of plan failure (i.e. going broke).  There is no sum of money so large that you can’t blow through it if you are spending the principal.  And take it from someone who has modeled out that set of dynamics hundreds of times in doing design simulations: you’d be shocked at how quickly the balance can go to zero.  If you have already retired, please don’t wait another year to give your finances a serious look, or make some changes if they seem called for.

The way I see it, it’s tough to lose if you peel back the cover and make an in-depth review.  You are either going to find out that everything is fine, and you can ease the cover down and get back to living your life; or you are going to find out that some action is warranted, in which case you have an opportunity to address it before things get any worse.

So in the spirit of the season, since everyone else is thinking about the year just passing and the one about to start, why not join the crowd and spend a bit of time (vigorously…) reviewing your financial plan.  The benefits are obvious.

And besides, next week you’ll be tied up with joining that gym…

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