Failing to Plan

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I don’t know about you, but the beginning of the year is when I usually do my greatest amount of planning. New Year’s resolutions, vacation itineraries, home improvement lists, and fitness routines can currently be found in my personal effects. Maybe I’m too rigid. Maybe I’m not spontaneous enough. What can I say? I need a plan of attack. Without one, I feel lost.

A lot of people I meet for the first time seem to view financial planning like a trip to the dentist. It’s not always fun, and you might not look forward to it, but it is necessary to keep your teeth clean and avoid a root canal. I’m no dentist, but I do firmly believe financial planning is necessary to accumulate and grow your assets, and to avoid the many financial potholes lurking around out there.

• Consider someone facing the huge burden of paying for their child’s college tuition the next four years versus someone who started a 529 Plan for their child eighteen years ago.
• Consider someone who wants to retire a year from now, but can’t possibly maintain their lifestyle in retirement versus someone who implemented a debt-reduction plan ten years ago so they could coast into retirement debt-free.
• Consider someone who made a generous charitable contribution the year after they retired when they were in a low tax bracket versus someone who more strategically made a generous charitable contribution right before they retired when they were in a high tax bracket.
• Consider the family of someone who is left in a coma after a tragic automobile accident with no estate plan in place versus the family of someone who took the time to execute a will, a Power of Attorney, and a Health Care Directive.
• Consider the family of someone killed in an automobile accident who never wanted to bother with the health questionnaire for life insurance versus the family of someone who made sure their family would be financially secure in the worst of circumstances.

 

Oftentimes it is better to be lucky than good, but I’m not always that lucky. I need peace of mind and confidence in my family’s financial security. I’m a firm believer in Ben Franklin's famous words that "If you fail to plan, you are planning to fail."

 

Just as a dentist can help a toothache, people often come to me at a time of financial crisis like imminent retirement, unexpected termination, a surprise job offer, a birth, a health tragedy, a death, or a divorce. Yes, I can certainly help, but it’s much easier and there are so many more options if you plan ahead. Maybe it’s me, but I prefer flossing a little along the way and having a few checkups every year to a painful toothache and a drill!

 

-Tom

Extra! Extra! Read All About It?

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I don’t know about you, but I prefer my sports teams winning versus losing, sunshine to rain, and the stock market trending upward as opposed to trending downward. I’m not sure the media does. Think about the coverage surrounding Mark Richt’s exit from UGA, the Braves’ rebuilding and relocating, and the Falcons’ collapse after starting 5-0. Think about the coverage every time we have tornadoes or, better yet, every time we might see a snowflake. Think about the coverage when the stock market is down a few hundred points in one trading day. There is so much more “breaking” news, so many more news alerts, smart phone notifications, and headlines that are shared when the news is bad. After one of the most volatile and negative months investors have experienced in several years, I’d like to ask you to briefly turn over your phone, mute your television, silence your radio, and turn off your computer for just a few minutes and look at the last ten bear markets with me.

A bear market is defined as a drop of at least 20% from the most recent market high. Below, is a pretty fascinating chart put together by J.P. Morgan showing the characteristics of the last ten bear markets (click on it).

As you can see, markets were down around 86% during the Great Depression. Markets were down 28% during the Cuban Missile Crisis. At a point during the 70s, and during the OPEC oil embargo, markets were down 48%. Markets were down 34% at a time in the 80s after Black Monday and the 1987 market crash. Markets were down 49% in the early 2000s when the tech bubble finally burst. Markets were down 57% during the Great Recession.

Folks, the S&P 500 was down about 5% in January and I’ve seen a whole host of headlines using phrases like “market crashes,” “market plummets,” and “investors robbed.” A catchy title or headline is obviously and purposefully trying to get you to buy a paper, watch the news show, or click a link, but I think it’s important to keep things in perspective.

On the right side of J.P. Morgan’s chart you may have also noticed some data on the bull markets or market recoveries. Markets roared back after the Great Depression, the Cold War, the inflation of the 70s, the Federal Reserve intervention in the 80s, the bursting of the tech bubble, and the Great Recession. On average, the last ten bear markets have been around a 45% pullback while the last eleven bull markets have been around a 151% pop!

Don’t get me wrong, I am concerned about a lot of things going on in the world, and I would not be surprised if market volatility continued. Inevitably, at some point, there is going to be another entry on the “bear side” of J.P. Morgan’s chart. Of course history also seems to offer there will then be another entry on the “bull side” of J.P. Morgan’s chart…

What am I telling people to do? The same things I’m always telling people to do! Make sure you have enough cash set aside to feel comfortable and for any large, upcoming expenses. Make sure that your portfolio is prudently diversified for your risk tolerance and age and stage in life. As hard as it is to accept, volatility is the friend of the long-term investor. The thing is, you have to stay buckled in during the down times in order to fully participate in the up times.

At the rate many media outlets are going, I really don’t know what phrases and terms they will use when we have our next bear market. I don’t know how far they’ll go to try and convince everyone that this time is different. I’ll continue to vigilantly monitor the markets, but don’t expect me to get caught up in some headline. I’m much more interested in focusing on the cataclysmic stinkage of my sports teams and the next allegedly imminent blizzard!

-Tom