Integrated Financial Training: Westchester NY

Empowering you to Manage your Money and your Happiness



Right Size your Financial Life - Planning

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Good judgment comes from experience...experience comes from bad judgment.

We have provided a simple case study to highlight the value of pursuing a financial plan with a solid process. The results are summarized below:

A young couple with two children each have good potential in their mid level jobs. They thought they could invest 60% in stocks for retirement and the rest would take care of itself. A simplistic financial plan would indicate all systems are a go for this approach. Unfortunately, stocks performed exactly as they have for long periods of time, rising quickly for 15-20 years (1982-1999) and then smoldering for the next 15-20 years (1966-1981 or 2000-present), and as such they were caught in a panic right before retirement. They accepted a substantially impaired lifestyle.

Alternatively, if they had planned properly, they would have avoided risking so much in stocks and instead invested mainly in inflation protected bonds to insulate them from these swings. They then also looked deeper into their situation to find improvements in how they used IRAs (switching from regular to Roth), when they begin taking social security and they decided to live in a very nice apartment in retirement rather than labor over an expensive house. They were able to maintain the same lifestyle they hoped for with their original 60/40 stocks/bonds investment strategy.

They also began to understand their world and how to navigate better in real time. They did not need to worry so much about investments with their new plan, but if their wage growth slowed it would impact their long run ability to consume a bit more than they originally thought. Also, inflation tends to come with many problems, such as lower real wage growth and some weaknesses in real investment returns, so they learned about the impact of several coincident threats. They might wonder about owning a house in the event of a plunge in home prices, but they could see how important the impact of home ownership with a fixed rate mortgage was in securing their housing costs in an inflationary environment. They learned how to determine the fundamental value real estate to avoid getting caught in the next bubble. They understood the important issues they faced and how sensitive their circumstances were to potential changes. They knew how to take appropriate actions to protect themselves so they could sleep better at night. Understanding their world helped prevent panicky decisions, which also tend to result in the most serious of mistakes.

But the actual planning process does not stop with the numbers. They needed to make decisions about lifestyle, working, and how they consume as well. Finances can affect decisions, but it is not the only factor. Suppose one wanted to take time out of working to raise the children, or family health history left them more concerned than usual. What is important in life and why? These questions need to be addressed in conjunction with the financial analysis of alternatives, and the methodologies developed through martial arts training can address these questions.

This case highlights the importance of knowing how to plan for yourself. Or if you choose to hire a planner, you need to know the questions you should be asking and the answers you should be expecting. With confidence you can then go on to address the major concerns of your lives.

Legal - The purpose of this site and all services offered are educational in nature and not to provide any investment advice, planning or recommendations of any securities. The purpose is to educate you to make your own financial decisions, or prepare you to evaluate your financial advisors with confidence so you can gain trust in the services they provide.




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