Precision Planning: Gaining Financial Confidence
Suppose you’re not feeling quite up to par. You finally decide to go to the doctor, and when you arrive, you fill out the usual questionnaire, including a brief description of whatever it is that caused you to make the appointment. You hand in the forms and, to your surprise, in a few minutes, one of the attendants hands you a printout with a prescription and a few instructions—along with an invoice for your copay.
How would you feel? Undoubtedly, most of us would be frustrated and a bit angry at being “diagnosed” without the benefit of any personal interaction. When we go to the doctor with a complaint, we rightfully expect the expert to ask us some questions, get to know as much as possible about what’s ailing us, and then, after appropriate deliberation, to provide personalized advice based on our condition and the doctor’s professional knowledge and experience.
Unfortunately, a lot of what passes for financial guidance and advice, these days, is little better than the process described above. Too often, those with the desire and intention of building wealth are left with more questions than answers, forced to rely on mere assurances that this or that product is the answer to their problems.
Precision Financial Planning and Financial Confidence
Fortunately, there’s a better way. For high-achieving professionals and others who are building real wealth, it is possible to create a financial strategy that is built around specific goals, needs, and values. And the even better news is that those who engage in such precision financial planning can enjoy greater confidence in their financial outcomes, less anxiety around day-to-day market movements, and better long-term portfolio performance.
Precision Planning Starts with Your “Why”
It is axiomatic that money can’t buy happiness. On the other hand, it does give you choices. In fact, money, though it is necessary for most of the things we care about in life, is not itself really what we most care about. We care about security; we care about helping those we love; we care about having meaningful experiences. None of those are monetary in the strictest sense, but money is certainly involved and even necessary for them.
In 2011, researchers at Boston College conducted a study of 165 very wealthy households (net worth of $25 million or more, average net worth $78 million). Funded by Wachovia Wealth Management and by the Gates and Templeton foundations, researchers wanted to learn, among other things, what sort of things the very wealthy worry about. Though we might expect their concerns to center on financial threats or concerns—taxes, unfavorable legislation, or similar matters—the surprising fact that emerges from participants’ comments is that most of their worries are not primarily financial. They worry about the safety of their families; about the quality (or scarcity) of authentic relationships; about the loneliness and isolation they often feel; about the lack of understanding frequently exhibited by others. In other words, the very wealthy are much more concerned with the “why” than the “how.”
This suggests that the most important feature of your wealth building strategy may be your “why”: What are the values and beliefs that undergird your life and efforts? What are the causes that you care most about? What are the core needs of the people who mean the most to you? What kind of impact do you hope to leave behind for your family and the greater society? Answering questions like these as you set your financial goals should result in a wealth-building and wealth management approach designed around your core beliefs and values, making it more integral to all aspects of your life, both financial and non-financial. Such a plan also lends itself to pursuit with greater commitment; when the goals are tied to your personal values, they mean more.
Next Steps: Aligning Portfolio Design with Financial Goals
As all successful people know, a plan that doesn’t include goals is mostly wishful thinking. Once you’ve identified your “why,” the next step is setting short-, medium-, and long-term goals and then designing a portfolio with characteristics aligned for achieving those goals.
- Short-term goals are things you hope to achieve in the next 1–3 years and might include items like establishing or revising your estate plan, improving the tax-efficiency of your portfolio, or reviewing your risk-management program.
- Medium-term goals typically have a timeline of 3–10 years and might encompass completion of funding for a trust, establishment of a philanthropic effort, or selling a business.
- Long-term goals are those that may require 10 or more years for completion and might include achieving a desired balance in a retirement account, funding education for young children, or paying off a mortgage or other debt.
The timeframes for your goals will suggest certain asset types. For example, short-term goals might dictate building up a liquid emergency fund made up of cash or short-term interest-bearing assets that are stable in value. Medium-term goals might be best served by assets with better growth potential than cash, but relatively good stability, such as medium-term bonds and bond funds, Stocks or equity funds that feature companies with secure dividends, or balanced funds with a mix of equity and fixed-income assets. For long-term goals where mitigating the effect of inflation is most important, allocating funds to assets with a potential for greater growth may be advisable: growth stocks or growth stock funds and possibly certain alternative investments such as real estate.
The point is, your goals and values should drive the design of your portfolio. Only by having a clear understanding of what is most important to you and where you hope to arrive at the end of your financial journey can you make the types of precise judgments that create financial confidence and lead to financial success.
A Modern Approach Built on Your Best Interests
Creating and executing a precision financial strategy is greatly aided by securing the services of a fiduciary, professional financial advisor. Such an advisor is professionally obligated to provide recommendations and services that are in your best interests. A fiduciary financial advisor will work with you to understand your “why,” will consult with you to develop financial strategies tailored to your unique needs, and will periodically meet with you to review progress and make any needed adjustments to your financial plan.
GEM Asset Management is a fiduciary financial planner and wealth advisor. We are committed to a focus on you and your needs, not our own benefit or agenda. If you would like to find out more about how precision financial planning can work for you, please get in touch with us.