Is Financial Planning Even Worth Your Time? Absolutely

Posted on January 8, 2019 at 12:52 PM PST by

A lot of folks confuse financial planning with financial worrying.

They believe that watching the stock market rise and fall, or obsessing about a stock that someone else has bought or sold, is the stuff of planning.

It’s not. In fact, good financial planning is the cure for worry. Even mediocre planning is better than none.

Here’s a statistic to consider. Over the 40 years from from 1978 through 2017, the S&P 500 Index of stocks returned 12% a year, including dividends.

During that period, the stock market average was above its long-term trend 78% of the time. When it was up it was way up, 300% over the long-term average in the best month.

When it was down, the worst month was 37% below average.

You might be heartened to understand that stocks mostly did better and when they did better they did much better than their average.

Certainly 12% is nothing to sneeze at. A meager $10,000 investment in 1978 compounding at 12% is today $930,510.

But about that planning idea. There’s no way you could have planned around a double-digit return over four decades.

At some point during those years the market was very high. You would have made, most likely, highly suspect financial decisions during those big bull runs.

Maybe a bigger house, a second or third car, vacations to far-off places. Why not?

Then the hangover sets in and you have to deal with the down years, and there were plenty (remember 1987? Or 2000? Maybe 2008 rings a bell?).

The point is, following your portfolio week by week is not planning. It’s reacting. And it’s reacting to short-term information that isn’t likely to help you forecast the next week, month or even decade.

Real questions

The goal of financial planning is not to adjust your investments unnecessarily but to really plan.

How will you cover the cost of healthcare? Insurance? Savings? Where will you live and will you have a mortgage?

When will you claim Social Security, and is it worthwhile to wait and collect a bit more?

Will you work in retirement, or do you have a pension or other fixed income that is due to you in retirement?

Importantly, where will you live and what is the real cost of living in that place, now and into the future?

These are real planning questions and well worth your time. The good thing is that a lot of this information is knowable and controllable.

No, you can’t really predict the future with any kind of certainty, but you can decide if you want to try to pay off a mortgage before leaving work. You can elect to downsize and avoid a mortgage entirely.

It’s not that hard to estimate your long-term healthcare cost and plan savings around those expected costs. Worst case, you stay healthy and that money just grows, right?

The best way to manage your investments is to settle on a portfolio that runs the right amount of risk and reward for your goals and then just review it from time to time.

Keep costs low and worry instead about the things you can manage. That’s financial planning, and it will make all the difference in your life and health over the years.

MarketRiders, Inc. is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.