Last week we covered several essential steps in the 100-level course on financial planning and strategy.  If you overslept and missed the bus and class, read part one here.  Today, we’ll discuss some 200 & 300 level planning strategies that tie things together.

Once you’ve outlined your accounts, their job descriptions, and related this back to your goals, taking action is the next step.  Where do you begin?  This depends on what’s important to you and your time horizon.  In the near term, monies necessary for priorities in the next three years may be best allocated to cash.  No sense attempting to squeeze out a return on your money when it’s a return of your money that your plan is counting on.  The exception to this may be when funding college education.  Moving to cash too early may leave you playing catch up on rising tuition and dorm costs.  The same may be said for retirement.  Target date funds increase your cash holdings as you approach your X date.  Considering historical rates of return, it becomes difficult for cash to keep pace with the rising costs of retirement over three to four decades.  That said, it’s always a good idea to have extra liquidity which may serve as a safety net.  When (not if) we experience negative volatility and prices temporarily contract, liquidity provides you options.  Keep in mind, this too shall pass in a bit, do try to hang in there and don’t react, just work your plan.  Talking to the teacher before doing something silly is highly encouraged when markets are volatile (both up and down).

Thinking longer term, owning all size companies in all geographies, in an efficient and diverse portfolio supports your plan.  Personally, I utilize exchange traded funds (ETFs) and so do our clients who have chosen to continue the relationship with us.  Why is that?  I’m a horrible guesser.  I have no idea what’s going to happen next in the market.  I don’t know how to make a market forecast or prediction, I never have.  The only market outlook I’ve experienced the past 25 years as a financial professional is that equities contract and expand over long periods of time.  Owning diverse companies versus lending to them via debt and fixed income allows for your investments to keep pace with rising costs.

Pop quiz, what does the above accomplish?  It takes the investment guess work and market timing conversations off the table regarding individual companies, sectors, and geography.  Owning the entire market allows you to focus the conversation where it should be.  Back to the plan, back to the goals, and back to inputs all students may control.  When you accept market volatility as a necessary step in the investment process, you are no longer surprised when company values contract.  You are free to spend time thinking of possibilities and your choices as opposed to preparing for the next market correction.

Automation, this singular step may have the largest positive impact on a students’ probability of future success.  Setting up automatic transfers to cash, investments, extra to debt, will ensure monies go to the right account for the right purpose.  Periodically, check in and review what monies are going where.  Is this supportive of your plan?

Spend the rest of your money and have peace about doing so.  Planning and strategy is NOT all deferred gratification and waiting for “one day” to arrive.  That’s a miserable approach to managing money, directing your plan, and leads to stress and anxiousness by leaning on market returns completely out of your control.  Come to terms with your spending and feel good about it.  I can’t overemphasis this enough.  Why?  The automation you have set up becomes your financial plumbing system moving money where it needs to be based on your plan.  This includes moving money to your future fun and happiness now account.  Here’s a homework assignment that should be enjoyable.  Repurpose a cash account for fun spending now.  Add to it so you may continue to spend on what you want.  Feel great about spending today while as you have a plan that keeps responsibility in check.

Invest, save, and spend, repeat this process.  A financial plan allows you to integrate all three and feel good about your choices and decisions.  Yes, mistakes may happen as life is messy and doesn’t always go as planned.  Remaining flexible and having a good temperament are uber important traits the most successful investors understand and practice.  The real value in having a plan is the ability to speak with someone you trust at any given time about anything on your mind.  Can you do it on your own, of course, not everyone needs a planner or is responsive to a collaborative process.  The true value in any relationship often builds on respect, trust, transparency, and honesty.  The same holds true when planning for your future.  It’s an ongoing dialogue on what’s happening in your life and how to make better informed choices.  All of this is taking place while you live your life getting closer to what’s most important to you.  Creating a plan won’t provide all the answers.  Creating ongoing dialogue with a planner and reflecting back on where you’ve been may.  A softer accountability goes a long way when strategically thinking about tomorrow.

This concludes class, thanks for your participation!  We recognize some students may have questions and seek clarity before signing up for the next course.  If you’d like to visit our office hours, feel free to email or schedule an introductory call on our online calendar.  No homework necessary, we’d be happy to listen and see what we may help you accomplish.

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