After beginning my career as an attorney and then transitioning to a CPA, I saw clients struggle to understand their complex financial situations and how to take the right steps toward improvement. Financial Planning was created as a professional discipline in the 1980s to address this challenge, and I became an early disciple. After now 40 years helping clients with legal, tax, insurance, investment, debt, and cash flow issues, here are some Observations and Experiences:
- When helping their children through gifts or inheritance, parents struggle whether to treat them equally or fairly (equitably), considering differences in age, need, and circumstances. The most likely path to avoiding conflict is to treat them equitably while you are living (and are present to coach them and explain the “whys”), but to treat them equally through your Will.
- Our brains feel the emotional pain of a loss more than the euphoria of a gain. This aspect of our behavioral psychology can have a big impact on our tendencies when investing, so be on the watch for it.
- Decide on your estate plan no later than your mid-70s. Dementia, Alzheimer’s, and other health issues can steal your ability to focus on this, and it can become too late to make changes.
- Managing your investments is a lot like taking care of your car. Regular maintenance based on a well-designed owner’s manual will give you a better long-term result with less stress than ignoring things until there is a serious repair needed.
- It doesn’t help anyone if you talk about your recent, great year of returns in the market without sharing how you did in the previous poor year, especially if you don’t provide any context about your situation and how much risk you are taking. You are at least confusing – and maybe misleading – others around you, and it may well lead them to make mistakes.
- For an adviser to be a true fiduciary, financial planning must be included along with investment management. Being able to provide advice that is in the client’s best interest requires that planning be central to the financial management service.
- When in doubt: choose future flexibility over short-term benefits (including tax savings). A lot can change in five years, let alone a lifetime.
- Financial planning is not a memo or a report – it’s a process, and an evolving conversation. It’s done best a little at a time over a long period of time, starting with the highest priority items. Avoid trying to think about everything at once, much less trying to fix everything at once.
- It’s easier to name guardians for your children when they are young than to name trustees for them from your estate. Being a Trustee requires someone who is willing to make difficult judgments, sometimes over many years. Being named Trustee is a responsibility – not a reward.
- The long-term path of investing has been persistently upward, but it’s important to prepare a portfolio in advance for the market downturns and disappointments which are sure to come along the way.
- Humility may be the most important trait for successful, long-term investing. That applies to financial advisers as well as to clients. Overconfidence about how a particular investment or part of the market will perform at a given point typically ends with regret.
- It’s OK to shoot for the stars with a small part of your investments. Just make sure that your feet are on the ground so that most of your portfolio is designed to provide steady, long-term results.
- Every bad/bear market has a different explanation or narrative, which causes investors to panic anew each time. But the actual response to each should, typically, be the same. Use it as an opportunity for rebalancing, diversifying, and reviewing your risk tolerance.
- A powerful concept in modern portfolio theory is investing ahead of market changes to capture what’s called “reversion to the mean.” Financial media would prefer to talk about the momentum of the moment – either up or down – and investors have a hard time accepting the benefits of holding asset classes that may be currently out of favor.
- Divorce is hard on everyone involved, but Grey Divorce is particularly disruptive to financial plans. It leaves little time for either spouse to rebuild the income and assets required to cover two lifestyles.
- Decide how much long-term care insurance and life insurance you will need in retirement no later than your mid-50s. Health issues tend to increase from then on that can prevent you from buying affordable coverage, and insurance gets a lot more expensive starting at age 60.
- Although financial planning and investing involve serious topics and important life decisions, curveballs will inevitably happen. Having a sense of humor and perspective can help withstand stressful times and lead to better decisions.
- Like all of life, the hardest part of finances – and the most satisfying part – is dealing with our own human nature. As an adviser, my greatest satisfaction has come from being close to people as they work through the challenges, heartaches, and successes of their financial life.
