What I’m Doing with My Family’s Financial Plan

As a long-term investor and a fiduciary to others and their wealth, here’s what I’m thinking and doing right now. This past week has required all investors to remain patient and disciplined, keeping their temperament in check. Sitting still and not reacting to the crazy is NOT easy or natural. Our brains weren’t wired to manage this.

Cut yourself some slack if you’re feeling tense and uneasy about what’s going on in the financial markets or in life in general. Everyone is trying to figure things out and decide what this means for themselves and family.

Here’s the key, it’s one thing to feel anxious and an entirely different thing to act on it. Before making any changes to your portfolio, ask yourself, how will I feel about this decision six months from now? What about a year from now? When possible, try to avoid making any decisions when your emotions are in an elevated state.

Now more than ever, having a financial plan matters. Why? A financial plan is personal and rooted in your goals and priorities, not necessarily your investments. Your investment values may change direction like the wind as we’ve seen recently. Making the most of what you have requires organization around a plan.

For our family, and many others, that means cash flow is everything. Where’s the money flowing and is it enough? Currently with two boys in college, we have a monthly burn rate that runs lava hot. Sure, 529s cool the temps down, but costs for fun and essential items and activities seem higher than they should be. So, how do we address this?

Holding the right amount of cash reserves in a boring checking account means we can get our hands on cash when we need to. We’re not trying to chase yield and tie up our cash in a complex product for returns, then wait for it to be returned to us. Simplicity is key as cash plays one of the most important roles in our financial plan. How? By allowing us to keep our investments invested and not interrupt the compounding taking place.

Our portfolio includes several long-term passively managed exchange traded funds (ETFs) that we don’t plan to use anytime soon. Our financial plan allowed us to assign a job description to each investment account, so it serves a singular purpose. Everything we own and owe on our balance sheet has a role to play and is held accountable to that job. We don’t plan to use our investment account to pay the mortgage or go grocery shopping so values can contract and expand without us losing sleep.

Opportunistically this week, we increased our monthly after-tax contribution to our investment account. We did this in February 2020 without having any idea what we were heading into. Cash reserves and a financial plan made this possible then and now. Having room for error and opportunity is priceless. And let’s face it, our family probably should be investing more for tomorrow anyways.

Rebalancing our investments once a year ensures the correct percentage of ETFs aligns with our goals. We tackle this annually, and when our investments stray from their designated percentages. An investment policy statement on our IRAs and after-tax investment account automates this decision so it truly is set it and forget it. This is by far the most overlooked and underappreciated opportunity investors often miss. Rebalancing adds real value over the long run.

Our plan shows the various tax environments our ETFs live in. This matches our income tax withholding strategies, so we’re not surprised on April 15^th. Funding my Roth 401(k) through this year before income tax brackets reset back to elevated 2017 levels is the current approach. Then maybe it’s back to pretax investing, who knows? We don’t sweat this because our plan is updated each year to factor in these external changes. No reacting, just acting on what gets us closer to what we want.

See it’s all about goals and planning, then your portfolio in that order of importance. Many have this backwards and lead with investments. That can be a stressful time as volatility arrives and prices zig and zag. This can leave investors feeling fragile to the extent of how the market is performing (or not).

Our financial plan is a lot like bubble wrap, keeping us intact and together despite the bumps along the way. Focusing on what we want, an ideal timeline, and inputs we control allows us to become antifragile. Our behavior and choices are less susceptible to reactions when we’ve surrounded ourselves in bubble wrap. Inputs not outcomes are the foundation of our financial plan.

If you’re closer to retirement than we are, then you’ll likely be holding more cash locally and separately where your investments live. This allows retirees to ride out price volatility in the early years of retirement. The correct amount of cash you hold depends on your spending and travel plans. I wrote more about this last month here.

It also depends on your definition of retirement. Are you done, or simply catching your breath with plans to work in a new role? Factoring your ideal choices into a financial plan allows you to predict living expenses and desired cash flows.  It’s all about cashflows regardless of your age and wealth.

Finally, it’s a good idea to keep in mind that nothing too good or too bad lasts for too long. With a financial plan (and planner) the message is the messenger. This may keep you from reacting and help you clarify what your tomorrow might look like.

 Chat - with Ryanor Contact Ryan