Robert Dunn, CFP®
Quality Planning to Ease the Mind During Crazy Times
Having a synchronized financial plan, cash flow plan and investment plan will give you peace of mind in all economic climates.
For many, the two main concerns are: Do I have enough money and where will the money come from?
Your cash flow plan should align with your financial plan and investment plan, depending on your needs, wants and wishes.
During the darkest days of the pandemic in early 2020, our team published a post about sticking to your plan when extreme outlier events like the global pandemic rock your world (A Reflection on "Once in a Lifetime" Events). This post went live just after the nation went on lockdown and the S&P 500 index tumbled 12% in a single day. Here we are 30 months later, and we’re not out of the woods yet, but at least there’s hope. That’s why I want to remind everyone about the importance of taking time to reflect on what’s most important to you and to take care of your loved ones – and yourself. To make that happen, I keep reiterating the importance of having a financial plan, a cash flow plan and an investment plan that work together to provide you with as much peace of mind as possible.
A financial plan is holistic view of your current financial situation, your monetary goals, and strategies to achieve those goals.
A cash flow plan is a comprehensive look at all available sources of income during your lifetime. A strategy is then designed to maximizes your resources in the most tax-efficient manner possible.
An investment plan considers the financial plan and cash flow plans above as well as your risk tolerance, your risk capacity and your risk necessity. We design the investment plan for you at a low-stress time when you are thinking rationally and not swayed by emotion. The investment plan is designed to get you through times when investments are most volatile.
The two main concerns that people have when they first come to see us are:
1. Do I have enough money? 2. Where will the money come from?
And when it comes to answering Concern #2 above, it’s not just about where the money will come from today, but where will it come from five, seven, or even ten years down the road? It’s essential to understand all of your different cash resources and to determine the most tax-advantageous way to utilize them. The tax laws are constantly changing, so we’re also adapting your plan in response. We not only look at your current tax situation and where the cash flow will come from; we look at it from the perspective of the next generation in your family and how your wealth will transfer. A crucial part of the strategy is helping you become less dependent on what’s taking place in the stock and bond markets to meet your income needs.
The cash flow plan ties in closely with the financial plan and the investment plan, depending on what your needs, wants and wishes are. If your cash flow plan is heavily reliant on your investment account, then we’ll revisit the financial plan if your plan is tight. And if your plan appears to have funds in excess of what you need to meet basic living expenses – as is the case for most Novi clients -- then it’s more about tax planning and legacy planning than it is about making ends meet.
When we’re going through hard economic times like today, you can count on us to be honest with you if you’re in a tough financial situation. We’ll tell you straight up: “these are the circumstances you’re facing and here’s what we advise.” We’re not going to YES you to death and we’re not going to be your budget masters either telling you how to spend your money. Instead, based on the money you have on hand; we’ll advise you about ways to make it through retirement without outliving your money.
Don’t Succumb to Planning Shortcuts At times like these, when there’s so much volatility in the financial system, I know it’s tempting to consider “guaranteed income” strategies like annuities. But as my colleague Dan Satz explained in a recent post, annuities can be very damaging to your wealth, your legacy planning, your estate, and your tax planning. An annuity is a quick fix during unsettling times (with a lot of fees and riders); it’s not an effective long-term planning tool.
The key to your investment plan is having an investment policy statement that takes all your different considerations into account: your goals, your timeframe, your fears and your comfort with investing. Those factors will dictate many of the actions we take regarding your financial plan or cash flow plan. It’s incredibly powerful when all of those plans work in harmony, but it will take some reflection on your part to make that happen.
The financial plan requires you to take a moment and review what is truly important to you. If you are concerned about your wealth, maybe we need to make some adjustments. We use a method of Needs, Wants and Wishes. For instance, you may need to shift a want to a wish, but it will require some soul searching to make that happen.
Take a moment to review what you can really control vs. what you cannot control. If you are having financial concerns that you don’t feel you can resolve on your own, it may be advantageous to find a fee-only financial planner who can help alleviate your concerns. A certified financial planner (CFP®) may not be compensated for any of the products or services they recommend to you, and they must always put the client’s best interests ahead of their own.
Our client-to-advisor ratio is one CFP® for every 50 families. Compare that to the big brokerage houses and financial institutions, where it’s more like one CFP® for every 250 to 500 families. With that kind of a client load, how they can they possibly do the hand-holding and personalized planning that firms like our provide for our clients?
During the early days of the pandemic, we wrote: “Humans are resilient. And thankfully, the United States and many other countries believe in capitalism. We believe that we will wake up tomorrow thinking about how to make our lives and the lives of those around us better. This underlying thought process exemplifies the growth we typically experience in our economy and will experience once again. It will also likely lead to innovation.”
I think it’s still very relevant today. Please reflect on the chart below if you are afraid that things will never recover. Hopefully this will help alleviate that fear.
It’s tempting to think: “This time is different,” but we’ve been here before; we’ll be here again. Be kind to yourself. Focus on the things you can control and let go of what you can’t control. Trying to time when the market will drop, recover, and eventually pass the previous high is beyond our knowledge, unless of course you have crystal ball or a time machine. As the old saying goes: “Time in the market always beats timing the market.”
If nothing else, the past three years will give you a remarkable story to tell your grandchildren about how we managed to move ahead with our lives under the direst of circumstances. Please accept our prayers and best wishes. If you or someone close to you has concerns about your portfolio’s ability to withstand inflation, recession and market volatility, contact us any time to discuss. We’re happy to help.
ROBERT B. DUNN, CFP® is the President and Managing Partner of Novi Wealth