This year marks my 20th year as owner of Corner Post Financial Planning. I am very blessed!
Initially, I planned to write about “20 things I’ve learned in financial planning.” However, that idea fizzled, because I realized it overcomplicated things.
Most of the time, simple is best. Thinking about the clients I’ve served over my career, a few themes occur over and over.
Thank you for letting me share these thoughts with you.
#1 Ways to Invest Change. Principles Do Not.
In June, a high-profile company had its IPO. Big initial public offerings generate lots of publicity. Indeed, this particular IPO generated more phone calls than normal. At the end of the day, though, it’s just another stock, among thousands available in the United States.
How clients invest to pursue financial freedom has changed over the years. Insurance products, CDs, individual stocks, mutual funds, advisory accounts, flat-fee planning–all of these were new once, and all still have their place.
What doesn’t change is the fact that to invest in any of the strategies I’ve mentioned, you have to have money. Sometimes this money is inherited, but it usually comes from your own savings. The way you do that is to spend less than you earn.
Successful clients are engaged with their money. They watch their bills and costs of living. They have a rough idea of their account balances and investment approach–aggressive, bucketed, conservative–even if they don’t understand every detail.
Successful clients also engage with the nonfinancial aspects of financial life, such as estate planning and mentoring the next generation. They often bring their adult children and adult grandchildren to meet us.
It’s a timeless truth: Successful clients are purposeful in building wealth, and they want it both enjoyed and preserved.
#2 Time is your BFF
Given enough time, you can accomplish a lot–financial or otherwise.
Going to the gym is my favorite example. The first few days and weeks are tough. But when you keep going, you feel better. You are stronger and more flexible. You have greater muscle definition and, hopefully, better health metrics. In other words, you are probably closer to whatever goal you had when you started.
Extreme examples that highlight this principle in investing are fun.
- If you invest $10,000 at 7 percent for a 1-year-old, it is $1 million for them at age 67.
- When he was 14, the great investor Warren Buffett had today’s equivalent of $67,000. If he’d done nothing but earn 7 percent on that money, that early hustle would have grown to $2.7 million by the time he turned 67.
This is a hypothetical example and is not representative of any specific investment. Your results may vary.
Early starters, or those with early good fortune, definitely have an advantage. However, the principle remains that making improvements to your finances NOW, rather than later, should land you in a better position.
Even if you are 50 years old, that’s still 20 years until you turn 70. Seventy is a very reasonable age for many of today’s 50-year-olds to plan to stop working completely.
Time can do some heavy lifting for you. As much as you can, let it! Then teach this principle to your kids and grandkids and guide them as they get started.
#3 Cash is king
“Our results suggest that having readily accessible sources of cash is of unique importance to life satisfaction.”
- Researchers in the journal Emotion (2016)
You should not invest all your money. In fact, not having cash savings–or an emergency fund, whatever you want to call it–causes a lot of problems. Mainly, it causes you to either have to go into debt or dip into your retirement savings.
Retirement withdrawals can come with taxes and penalties.
I wrote about what has been called the “barbell” strategy several years ago during a market downturn. This concept put forward by the trader and statistician Nassim Talib can help all of us think about our money needs as two ends of a barbell: one is NOW and the other, LATER.
The NOW funds are in cash, and the LATER money is invested aggressively. The ends of the barbell do not have to have equal weight, but essentially you need enough money in cash savings so that everyday challenges like car repairs don’t crash your future.
This idea may not be optimal from an investment standpoint, but for folks at some stages – especially getting started – it could be a helpful model.
#4 It’s hard to 401(k) your way to retirement
Financial planners, including myself, are always telling you to save, save, save. And you should.
As a retirement plan, this advice works pretty well if you understood #2 above (Time is your BFF) at the age of 23 and made enough money at that time to be able to save 15 percent of your salary.
Under this scenario, the typical college grad making $60,000 at age 23 and saving 15 percent and receiving annual increases could wind up with more than $3 million after 40 years.
Here in the real world, most people I talk to are not 23 and many were not in a position to do everything right at a young age. Their paths include mistakes, illness, divorce, layoffs, family needs, and more.
Most of my clients will not rely strictly on drawing down their workplace retirement plan or other investment accounts. Instead, they have:
- Social Security (a very valuable income floor for most Americans)
- A family business to sell or stay involved with
- Consulting or part-time work opportunities in retirement
- Insurance products
- Pensions (even small ones make a difference!)
- Gifts or inheritances (most are small, but our clients typically use what they receive wisely)
I feel led to share this because often I talk with prospective clients who feel they are “behind.” They read an article about how much you should have saved by a certain age. Most people are “behind” if you follow textbook definitions. You haven’t failed because you didn’t do everything right. Revisit #2 and give us a call.
#5 Financial planning clients do not have a certain “look”
My clients go to church, go to work, volunteer, go to the doctor, and babysit their grandchildren just like everyone else. They look respectable and drive decent vehicles. However, Hollywood-style flashiness or exciting investment ideas are not good indicators of whether someone actually has any money.
Most of my clients spent less than they earned over a period of time and invested the difference. They don’t stand out at the grocery store.
#6 Take the trip
In my 20 years in business, I have seen clients live long and healthy retirements, and I’ve seen lives cut sadly short. We watch clients struggle to balance their work obligations or retirement plans with caregiving duties. As we age, travel becomes harder. Most of us have more doctor visits and, in general, a preference for keeping things as they are.
I don’t encourage people to spend money they don’t have, but I do encourage you to make sure you enjoy life. If there’s a trip you’ve always wanted to take, a hobby you want to explore, or an upgrade that would make your home work better for you, make it a priority!
If you need us to, our team will help you come up with a plan to fund your exciting goal, but we don’t think you need to wait until you’re 65.
To wrap up, thank you sincerely for letting me share my thoughts with you, and for your business and trust over the years.
Many clients have entrusted us with referrals of friends and family. That is a high compliment that we never take for granted.
We look forward to continuing to share your journey with you.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Related articles:
How much should I realistically have saved at 50? by Beth Henary Watson
Can I retire with $1 million saved? by John R. Berry
What does Social Security do for me? by John R. Berry