For too many people, a “financial plan” is either an outdated document gathering dust on the shelf or a painful memory of an expensive process where a financial salesman rifled through their private affairs in search of a commission opportunity.
Without a plan, however, people wrestle with retirement choices without the facts needed to make a good decision. Investors don’t know how much they need to invest in order to achieve their unspecified goals. In fact, the whole season of retirement raises a frightening series of questions when it ought to be an exciting reward for a lifetime of hard work and achievement. Humans have a thankless habit of converting luxuries into problems. Without solid planning, we may convert the once unheard-of privilege of retirement into a myriad of quandaries and dilemmas. It is even worse when workers plunge into retirement before they are financially ready to make the leap from earned income to living off their pile of financial assets.
Those who do try to plan often end up asking a financial salesman to design the plan, which ends up being biased toward whatever product he sells. Others rely on do-it-yourself rules of thumb that fail to account for individual circumstances. Free web-based tools typically fail to address the real world problem of return volatility. A more robust solution would use a Monte Carlo analysis to examine what happens when stocks start out the retirement period by underperforming the original expectations. Printed plans that sit on a shelf fail to address the year-to-year changes that impact our lives, and our financial resources, as time goes by.
At May-Investments, financial planning is an ongoing process. Just as we continually monitor the markets to search for new opportunities, our approach to financial planning is also dynamic – ever changing as client circumstances evolve. Our plans are flexible and dynamic, a continuing dialogue about clients’ unknown futures so that we can make changes to the real-time strategies we’ve employed.
Plans don’t go stale because the planning process is never “done.” Sophisticated financial planning tools help individuals identify risks, collaborate with other professionals (CPA’s and estate planning counsel) during the process, import assets directly from their investment accounts and tweak goals and assumptions throughout the year. Comprehensive financial planning clients are more confident about their futures, and feel more in control of their future. With better financial direction, more know they are on track to realize their goals. There is also a correlation between the amount of assets accumulated and their willingness to participate in a comprehensive planning process – although there is a question of which came first, the plan or the assets.
Sadly, the folks who could most benefit from participating in a financial planning process are probably among the least likely to be reading this article. Those who have the worst sense of direction aren’t particularly interested in articles comparing compasses. The benefits to planning, however, are even more profound for those who haven’t done much of it in the past. We actually use something called a “financial roadmap” as the basis for our planning process. Don’t leave home without it.
Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies .
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