Planning Sucks, But It’s Worth It

I get it: planning sucks. It’s like someone else always telling you what to do. Much of it involves trying to allocate insufficient resources to satisfy excess demand for those resources. Financial planning can be even worse: it involves money, which never seems to be oversupplied (unless you’re Elizabeth Warren bad-mouthing poor Jerome Powell). Undesirable terms like budget, taxes, required, beneficiary, and, yep, death, get thrown around ad nauseum (I threw Latin in there just to drive the discomfort point right where it needs to be).

Here’s the kicker on planning, though: rarely, if ever, does one incur a negative outcome from it. Sure, executing the plan frequently proves to be rife with pitfalls. Conditions change. Unintended consequences arise from choices made (or avoided). Your in-laws move in for an indeterminate period of time because their basement flooded. The process of planning is like free self-education.

The upsides of financial planning can be multitude. One might discover upside earnings potential due to an over-allocation to cash or “low-risk” fixed income. Or, a couple could learn that their counterpart is far more risk averse than they initially thought, stressing their union with lost sleep and unneeded anxiety. Reviewing financial assets in their entirety with a professional could unearth misallocations versus a risk profile that explain past periods of under- (or over-) performance amid periods of market turbulence or calm. To borrow from Forbes: with all thy getting, get understanding.

Recent conversations with a prospective client discovered that across the half-dozen accounts they held at four different firms they sat on $250,000 of cash in excess of their desired cushion. At a moderate level of risk tolerance (45% in the Bloomberg Agg Treasury Bond Index and 22.5% in each of the Russell 3000 and MSCI World ex-US) over the past year this misallocation amounted to an opportunity cost in excess of $33,000, or the sum of lease payments over the next three years on the new pickup the client wanted to purchase. Another client complained of a prior advisor perpetually allocating their capital too conservatively when, in effect, the advisor achieved an appropriate risk profile but did so by significantly over-allocating to relatively underperforming international equities. Without an effective planning process, however, no one grasped the roots of the issues. Anecdotal evidence, to be sure, but personal examples frequently provide the best impetus for action.