Imagine updating your financial plan in January, April, or December of 2020.  How might the plan outputs at various dates have impacted your behavior and financial choices?  What other life decisions may positively influence your approach to planning?

January 2020:  The market was riding high after finishing a solid financial year in 2019.  We didn’t know about COVID-19, so our lives and daily activities looked radically different then they do today.  You were feeling good about your financial accounts after meaningful dividends were credited at yearend.  As you reflected on your plan you may have increased your investments, accelerated debt payoff, considered the big ticket purchase you had been thinking about, and maybe booked a summer vacation.  Things were good and you were feeling confident.

April 2020:  A completely different story just three months later.  Your account values, assuming they were equity based had temporarily contracted 35% +/- in the previous 30 days or so.  The good news we didn’t know at the time was the market bottom arrived in March and permanent forward advances were already in motion.  A nice thought, but this was completely unknown.  At this point, you were likely reacting to news and updates as the tsunami waves of uncertainty continued to wash over all aspects of daily life.  Schools were closed and balancing work and family responsibilities was not easy.  Financial planning at this point was simply about survival, having enough food and TP in the house as you hunkered down.  You likely may have passed at the opportunity to review your plan if given the chance.  Focusing on more material needs and “the now”.  It’s possible you hit pause on your investment contributions and began wondering why you didn’t have as much cash reserves as you now felt were necessary.

December 2020: The holidays are here, the first snow has taken place, and a new year begins next Friday.  A lot has changed since April, your outlook may be much brighter than it was just eight months ago.  Positive news on multiple approved vaccinations is encouraging.  Your work from home routine is in sync at this point and your worries of job security are significantly reduced.  Your investment accounts have reinflated themselves and are now at all-time highs assuming you didn’t panic and react earlier in the year.  Your holiday gifts are purchased and you are looking forward to relaxing with fewer Zoom meetings on your calendar.

Updating a financial plan at any of the above dates would have generated wildly different outcomes based on several inputs.  The obvious is where company prices and dividends were when you updated your plan.  Your current savings and investing levels along with where you directed your investments makes a difference.  The less obvious and more real impact to planning is how you felt at these different high and low periods and its impact on your actions.  What can we learn from this?

First, updating a plan once a year regardless of timing is critical to long term success.  There will never be a perfect time to complete this.  Setting the time aside on your own or receiving a friendly nudge from your financial planner gets it done.  Stepping off the moving life treadmill and taking stock of what you own and owe matters.  Once the numbers are collected and in one place, what do you see?  Are you happy with it or are changes necessary to support your possibilities?

Second, are you still excited about your goals?  Do you have goal clarity or is it a bit foggy?  Having lived through the past twelve months, it’s possible that priorities have shifted, and certain goals may be more or less important than they previously were.  The driver of a good financial plan is the clarity of one’s goals.  At Flowerstone Financial, we believe when you approach your planning with goals first and then hold your portfolio accountable, achieving more is possible.  Take a minute to think about that counter intuitive approach.  Goals, planning, and then your portfolio in that order of importance.

Third, having reflected on your goals how does your above balance sheet support what you are working towards?  What changes to your spending and savings are necessary if any?  Does your portfolio of investments accurately reflect what it will take to build wealth overtime?  The compression and expansion of your account values earlier in the year is volatility, not risk.  Understanding risk and volatility in your planning is important.  A real risk is running out of money because of a failure to plan.

Finally, a financial plan is a forecast at a particular point in time that will most certainly change.  Recognize that your external environment impacts how you feel towards what is saved and spent.  Investment values, your emotions and goals are cyclical and may change and evolve overtime.  What’s important is implementing automation into your investing so it continues regardless of what’s going on at the moment.  Removing emotion from your financial decision making and letting your plan work by automatically moving money to the right accounts for the right purpose creates the best outcomes over time.  We consider our client’s “financial plumbing system” run by automation to be a large determinant of their future success.

The point of planning is not to be completely accurate but simply to be less wrong as time passes.  How to be less wrong overtime requires communication with an accountability partner and revisiting your goals.  This will impact your choices, define what real risk is, and allow you to construct a portfolio guided by your priorities.  As you reflect on the year, what would really make a difference and excite you about 2021?  Would accountability and a repeatable process allow you to delegate more and focus your efforts?  We believe it does and are ready to chat when you are.

If you are uncertain or have questions we’d be happy to chat with you Chat – with Ryanor Contact Ryan.

Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Flowerstone Financial are not affiliated.

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