The Adjustment Bureau Sequel
More on financial planning and adjustments
Happy Wednesday!
No, there isn’t a sequel to The Adjustment Bureau movie on the way as far as I know…
However after last week’s email, I wanted to share some additional thoughts on financial adjustments.
It’s been said that only 2 things in life are certain: death and taxes.
But I’d like to add a 3rd to this list…
The only constant in life is change. - Heraclitus
Your life will change.
As a result, to keep your plan on track to support you living your best life (however you define that), we’ll need to make some adjustments.
But which adjustments are most helpful in your financial planning?
Back in 2009, I wrote this article:
It’s aged well, in my opinion, as I still believe and practice the tenets outlined in this article with my clients today.
In summary, it boils down your most meaningful financial adjustments to just 3 simple variables:
Time
Cash flow
Risk
I encourage you to click the link above and read the article for more context.
My friend and colleague, Perry Chesney, wrote an article in May of this year with a similar theme:
While Perry’s article is written more for financial professionals, I think what he’s describing might sound familiar, and his perspective is just as applicable and valuable to your planning decisions.
Perry has identified 6 variables, or levers, that can be adjusted with varying levels of success:
How much you spend
How much you save
How long you work
How much you want to leave behind
How long you live
Market returns
Here’s a visual of these ideas from JP Morgan’s Guide to Retirement:
You see, financial adjustments only work if you’re adjusting something within your control or influence.
Otherwise, you’re just tilting at windmills.
My article above attempts to distill your choices down to those most within your control.
Perry includes both things you can and cannot control in his list. As does the image above from JP Morgan.
Which brings me back to the question,
“Which adjustments are most helpful in your financial planning?”
And perhaps just as important… when do you make these adjustments?
Well, it begins with placing your focus on the right things. That is, decisions within your control.
However, many times people seem to want to adjust the wrong thing.
This is because they’re often - though not always - focused on the wrong thing.
They’re concerned about the market, for example, and want to do something.
Anything!
Anything would be better than just sitting by and watching the market - and your portfolio value - bounce around, right?
“I want my money working for me!” you might think.
But we can’t control or even influence the market.
Not one iota.
We can, however, absolutely control our exposure to market risk. We do this through our mix between stocks, bonds, and cash.
But that’s not the only variable or lever we can adjust.
We can also adjust the dollar amount and/or timing of our financial goals.
We can spend more or less.
Save more or less.
Earmark more or less dollars to leave to our family or other organizations.
We can retire a year or two later.
Or sooner.
Instead of that big travel budget every year, maybe we make it every other year. For a while, at least.
But you know what?
In my experience, very few people are willing to make these kinds of controllable and impactful adjustments.
Perhaps this is as much a reflection on me as an advisor as it is my clients’ behavior…
And I’m not talking about anything drastic here…
Maybe I advise you to reduce your monthly spending by 3-5% for a period of time.
Or if the market is down, the best thing to do might be to buy more stocks (while they’re cheaper) which means higher expected returns over time, albeit with higher expected short-term volatility. This may allow you to improve upon your existing goals or add new ones to your plan.
The biggest benefits to working with an advisor like myself include accountability, organization, simplification, having a thinking partner, and more.
But perhaps the biggest benefit is that YOUR money isn’t MY money.
I can bring more objectivity to your decision making process and help you avoid making the wrong decision at the worst possible time based on your emotions.
I recognize that these types of adjustments are much easier said than done.
Because it’s not my money.
But that doesn’t make our effort any less worthwhile.
Many people seem to settle into spending what they spend.
And if they have an opportunity give themselves a raise or even need to take a temporary “pay cut” they’re often unwilling.
Same thing with portfolio risk.
Or an estate/legacy goal.
And endless other examples.
People I talk to acknowledge the main points I’ve laid out above…
The market isn’t controllable. And it surely can’t be predicted.
We all know the market, our lives, and our financial plan will change.
Yet when things get a little tenuous in the investment markets, that’s all most people want to talk about.
That’s their focus.
Even though it’s out of their control.
And they don’t appreciate me telling them - as I’ve told them before - that no, I don’t know what will happen with the market, interest rates, the price of oil, the next election cycle, and a gazillion other data points that bounce through our lives every day.
All this to say, you have one more “adjustment” to make if you’re working with a financial advisor…
You’ll need to decide if you want your advisor to tell you what you want to hear or what you need to hear?
And this isn’t a decision you’ll make just when you initially engage a financial advisor. You’ll have to continue to make this decision over and over again across the rest of your years.
Many advisors base their business model on being agreeable and following your lead. Because when your money moves around - even for the wrong reasons - it creates more opportunities for some advisors to get paid.
But money is a lot like a bar of soap…
The more you handle it, the smaller it gets.
I don’t work that way, and I don’t deliver advice that way.
But that means that my advice isn’t always going to be easy to follow…
Knowing that, you can “adjust” accordingly.
Links & Things
I’d love for you to read this short article from Seth Godin. He’s talking my language and it really resonated with me. Particularly his distinction between problems and situations. Lots of parallels to financial planning and investing I believe.
Thank You!
I’m glad you’re here. And I’m grateful to have you as a reader.
If you have any questions or an idea for a future email letter, blog post, or YouTube video, I'd love your input.
Or if you just want to say hi 👋
Simply hit reply - I read (and genuinely appreciate) each and every message you send.
Until next Wednesday,
Russ