Why You May Need a Financial Plan

Imagine that you’re embarking on a long-awaited dream vacation, eagerly anticipating arriving at your destination and enjoying the fun-filled days ahead. However, after enduring the ordeal of passing through security, navigating to and waiting at your gate, storing carry-on baggage and finally settling into your seat, your pilot shares the following facts during the pre-flight announcement:

• The plane will drift off-course more than 90% of the time
• There’s no safe way to make up for lost time
• Turbulence is inevitable

Wouldn’t any rational passenger be looking for the exit? Although it’s true that flights travel off course, experience turbulence and are unable to make up for lost time, it’s also true that the majority of travelers arrive safely at their destinations and go on to enjoy their trips as planned. The same is true with accumulating, preserving and sharing wealth. Nevertheless, is it any wonder that many people choose to look for the exit when it comes to their finances?

It’s been said that most people spend more time planning their annual summer vacation than planning for their financial future. The reason is that people often confuse the planning process with the end result. As the old military saying goes, “Plans are useless, but planning is essential.” Let’s explore the distinction.

Creating a Traditional Financial Plan

Planning—whether it’s for a vacation or for your retirement—starts with making assumptions about the future. With traditional financial plans, these assumptions are well-intentioned efforts to forecast a wide variety of factors, such as stock market returns, taxes, inflation, how much you will save, when you will retire, how much you will spend in retirement—even when you’ll die. While the general factors are similar for every woman, the details are unique for each individual. For example, one woman may envision retiring early, while another plans to never stop practicing her profession. That’s why, when we start the process of creating a financial plan with SignatureWOMEN, we account for each client’s distinct goals, desires and resources to help assess how their personal financial forecast will take shape.

If you have been through the financial planning process, you know that it can be very uncomfortable because no matter how intelligent or determined the effort, we can’t possibly know precisely what the future will hold. This is the cruel irony of any plan; it’s true whether you’re planning a vacation, starting a family or planning the rest of your financial life. However, if we accept the fact that even the best-laid plans will be imperfect, we can focus our energy where it rightly belongs: on the ongoing process of planning instead of obsessing over the fact that we can’t predict our future.

Risk Management and Expert Guidance

Think back to our travel analogy and consider the difference between a flight plan and the process of flying itself. No matter how much time and resources are invested in pre-flight planning, things rarely proceed according to plan. There are just too many uncontrollable variables, such as weather, turbulence and traffic conditions, to accurately predict everything in advance. However, an experienced pilot is invaluable in understanding that while planning is important, the key to a successful flight is in making the small, consistent course corrections required to arrive at the final destination safely.

The same is true with navigating the course of building, preserving and sharing wealth. Although life often presents us with circumstances beyond our control, we always control our response to them. For example, we know that it’s not a matter of if, but when, the capital markets will experience temporary setbacks. In fact, despite its long-term return of nearly 10%, the markets have declined an average of 15% once every three years historically. While such periodic ebbs and flows of the business cycle are common and should come as no surprise, it’s clear that most individual investors are caught off guard, much to their dismay. This helps explain the behavior behind the sad statistic that average individual investors manage to retain less than half of the full market return over time. Why is this the case? Perhaps it is because the average individual investor simply doesn’t have the time, experience or desire to succeed on their own.  Further, we tend to be our own worst enemies when presented with the complex and often counter-intuitive decisions required to make the necessary adjustments.  Warren Buffett himself has observed, “It won’t be the economy that will do in investors; it will be investors themselves.” That’s why the clients of SignatureWOMEN partner with us to manage the ongoing planning process, relying on professional guidance to reduce turbulence, make course corrections as needed and prevent squandering arguably our most valuable resource—our time.

So, what do we do for our SignatureWOMEN clients when the unexpected occurs? We don’t react—we respond. In other words, we stick to the plan. A key characteristic of our working relationship with the women we serve is a mutual acknowledgment of the high risks of short-term emotions; that the 24-hour news cycle often serves to promote fear about the apocalypse du jour rather than support the long-term decision-making process required to accomplish their most important goals. The mothers, wives, and daughters we support have shared with us that the true value of our comprehensive approach to managing wealth is that it anticipates the unexpected and replaces fear with confidence.