A Goal Without A Plan Is Just A Wish

Jalene Hahn |

I’d like to begin with a shout-out to French pilot and author Antoine de Saint-Exupery who has entertained readers from youth through adulthood with his books The Little Prince and Night Flight. He was also a poet and creator of memorable phrases including the one I’ve borrowed for today’s title.

There are those in the world who do everything according to a plan. However, Jalene and I often meet people who are simply living their lives without really having tried to figure out where they want to be at any specific time in the future. For them, goal setting is usually the first step in financial planning. Once goals have been identified, it’s equally true for all that the details of the plan must be worked-out so that their wishes have a reasonable chance of coming true.

Most plans involve investing so there’s money available to fund the identified goals. Helping people decide how much to save and in what sort of account is one of our most important roles. It might seem to make sense to simply invest in small cap stocks, the asset class which has shown the highest returns over the past 90 or so years. However, it’s also the most volatile asset class and study after study has shown how often investors panic and sell at just the wrong time. To try to avoid putting clients in that situation, we begin all planning projects by developing an allocation model appropriate to both their needs and tolerances for risk. To help us decide upon the right mix of stocks, bonds and cash, we ask them to complete a risk assessment profile. Such tests suggest the taker’s probable response to various market happenings – including corrections. We use one called FinaMetrica. It involves answering 25 questions and has been taken by more than 800,000 people the world-over. We believe it to be the best available and worth every cent we pay to license it. Clients often come two-by-two and the FinaMetrica process helps us coordinate the feelings and fears of both, allowing each of their responses to become part of the planning process.

We know that even the most sensible asset allocation strategy is going to show losses from time to time. Those client who have been with us during market corrections say that our calming presence has been a help – it’s certainly our intention to be available during good times and bad.

Assuming a suitable investment strategy has been implemented, what else might happen to derail a financial plan? Most commonly, it’s one of those known unknowns, something untoward happening at just the wrong time. Whether an auto accident or health issue, we almost always recommend different types of insurance coverage to keep plans on track regardless of what goes wrong. Although we believe that everyone needs insurance we’re basically agnostic as to brand since we don’t sell insurance ourselves.

Life insurance is almost always important for families with young children. Parents make commitments related to their children’s lives and the death of one parent shouldn’t force those plans to be changed. At a time when employment is basically full, a worker might be forgiven the assumption that company-provided coverage is enough. In fact, employment is not guaranteed and even the best of employees can find themselves out of work. In today’s highly transparent life insurance marketplace, the cost of insuring a reasonably healthy person is quite low so we often recommend personally-owned policies.

Life insurance needs usually drop off significantly once children become independent. This means that term policies are often the best choice since they can be purchased with various maturities so that that coverage is automatically phased out at appropriate intervals. That said, by the time life insurance needs have fallen, the family might have acquired a collection of furnishings, jewelry, art, etc, so the need for property coverage may have risen. In addition, it’s important to be sure that auto and umbrella coverages are always at appropriate levels.

We like to discuss long-term care insurance with all of our clients since a lingering illness can derail even the most thoughtful plan. The majority of such policies require payouts, though, so both underwriting standards and premiums tend to be high. This means that not everyone is insurable or can afford this type of coverage. If that’s the case, we sometimes recommend different strategies that may be more suitable in a specific situation.

Using plans to turn wishes into realities is what we do at WWA but we’re not the only ones thinking along these lines. In the recent book Strategy Rules, authors David Yoffie and Michael Cusumano identify five lessons common to the management styles of three of the most famous (and successful) tech entrepreneurs of all time: Bill Gates, Andy Grove and Steve Jobs. They named the first of these strategies Look Forward, Reason Back. Yoffie and Cusumano point out that those three leaders were uniquely able to “look forward” to envision the best future for their companies, then "reason back" to identify the moves required to get them there. I have a feeling that any of the three might have made a good financial planner.