Your portfolio vs your plan
Hope you're having a wonderful Wednesday so far...
Understandably, several of you have reached out recently concerned about the increased ups and downs in the market.
And in your accounts.
One of the things I've reminded many of you is that your portfolio and your plan aren't the same thing.
Don't get me wrong, no one likes to see the value of their portfolio go down.
I'm not immune to this any more than you are.
But while your portfolio is an important ingredient in your financial life plan, it isn't the same thing.
It's just a component part.
Just like individual companies and the overall stock market aren't the same as - and don't always behave like - the overall economy, the same is true when it comes to your portfolio and your plan.
For instance, see this illustration which is for one of my clients (anonymized):
Many of you that have worked with me for some time are familiar with the concept of your personal comfort zone. This is the range of planning outcomes between 75% and 90%.
The midpoint in this comfort zone is 82.5% but since we're only dealing with whole percentage points, let's round up to 83%.
In the illustration above, this client's plan is currently at 82% confidence. Or pretty much in the middle of their personal comfort zone.
But as you can see above, it can be much more meaningful to convert these percentages to actual dollar amounts.
Their current portfolio value of $1.7 million = 82%
Their personal comfort zone lies between $1.6 million (75%) and almost $1.9 million (90%).
In fact, if you can read the small print below the graphic above, you'll see that their portfolio (not the market) can fall by another 4% before we'd be outside their comfort zone.
And if we're outside the comfort zone, we can typically make some relatively small adjustments to get back to the middle of their comfort zone. More on that below...
So yes, the market has gotten more volatile as of late.
It may continue.
It may get worse.
Or we might have already experienced the worst of it.
I don't know.
But don't assume changes in your portfolio value mean your plan (and your life) is wrecked.
For instance, in the event the client above's portfolio did fall another 4% and their plan was at or below 75%, that would simply serve as a prompt to reevaluate the client's choices and the trade-offs among them.
Important: this exercise is all about focusing on the decisions within your control. What the market does day-to-day or week-to-week isn't among the things within your control. Or mine.
What might this client do if their plan fell to 75% or lower?
They could:
work a year longer,
increase their savings,
lower their liquid estate/legacy goal,
increase their portfolio risk (buy more stocks),
reduce or defer other goals in their plan, or
some combination of the above.
Through regular review and monitoring of your plan, we aim to make small adjustments as needed along the way.
The alternative is to let 2, 3, or more years go by and possibly having to make a BIG, potentially drastic and/or expensive change to your plan.
And to your lifestyle.
Don't think anyone wants that...
Regardless of what the coming days, weeks, and months mean for your portfolio, please don't lose sight of the fact that your portfolio isn't your plan.
And since we're building and managing your plan to fall within a range (your comfort zone), this means we're deliberately not managing your plan (or your portfolio) to a razor's edge of exactness.
That leads to all sorts of problems, not the least of which is a false sense of precision.
Note: I realize I'm throwing around a lot of terminology above that may not be familiar to each and every one of you.
If you have any questions about any of it, please hit reply and let me know.
Links & Things
Just a heads up... Elizabeth and I are taking off some time in May to celebrate our anniversary (#26). I'll provide more details to my clients before we leave.
I got a ton of replies from last week's email on "Urgent & Important."
Here's another take on how to decide what you should or shouldn't be doing, and it's based on the idea of an "Aspirational Hourly Rate."
While I think this idea could be another helpful tool and decision filter, I don't think it's as effective as the Eisenhower urgent vs important matrix.
For example, as I've shared with a couple of you, just last week I had 110 bales of pine straw delivered to our home.
And I spread them all myself.
Best use of my time?
Maybe or maybe not.
But it did get me outside for several hours, I got some exercise and sunshine, and I listened to an audio book the entire time.
Had I applied the aspirational hourly rate concept, it probably doesn't make sense for me to have spent all that time spreading pine straw.
But for me, while it wasn't really urgent, it was important for me to get out from behind my desk and spend a few hours outside in the sunshine doing a little work with my hands.
Does that mean you should "spread your own pine straw?"
I don't know... that's up to you to decide.
Thank you, as always, for reading.
And if you have any questions or an idea for a future newsletter, blog post, or YouTube video, I'd love your input.
Just hit reply - I read (and appreciate) every email you send.
Until next Wednesday,
Russ