PAUL ANDERSON: Life changes, and so should your plan
| Friday, Nov 04 2011 12:00 PM
Last Updated Friday, Nov 04 2011 01:03 PM
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Paul Anderson
I am a strong believer in taking family vacations. With four kids, including an active 3-year-old, the driving portion of the trip is always a challenge. Bonding by singing show tunes and playing highway bingo, laughing all the way down the interstate, doesn't seem to apply in my household.
To lessen the frustration, I painstakingly make plans to create a worry-free drive from my home to the final destination. I plot out how many miles we will drive each day, where we will stop, and exactly which highways we will take. However, one wrong turn and several hours of complaining kids later, I have still found myself questioning my sanity in taking on such a trip in the first place.
A road trip is like a financial plan in many ways. We can spend hours trying to nail down every detail, but something will inevitably go wrong. Whether it is due to a flat tire or your kid's impossibly small bladder, you will need to make an unscheduled stop and tweak the plan to keep on track. It does not matter who created your plan for you; it could have been developed by Warren Buffet. It will still fail to reach your expectations without regular review and adjustment.
There is one fatal flaw for every plan, regardless of who built it. The problem is that ultimately the plan was made for people, and people change. Since your goals tend to vary as you move through life, the purpose of the plan will also change. Early on you want to accumulate wealth so that you have a good nest egg, then you want to discover a way to generate future income through interest, and as you get older you may just want to preserve capital for your retirement. Our risk tolerance changes with time and situation as well. People tend to get more conservative as they age and will have less tolerance for risk, making their investment decisions quite different from when they were in their 20s.
Life changes as you get older, too. Getting married, having children or even getting divorced can bring major upheaval to your life and should also trigger changes in your financial plan. Every time you reach a milestone, such as buying a home, starting a new job, going back to school, or sending a child to college, you should consider the need to revisit and update your plan.
Also, you don't know for sure what life will throw at you and require unexpected adaptation. For example, other events that may trigger the need to revisit and update your plan would be:
* Loss or cutback in employment
* Death of a loved one
* Long-term health problems
* Unexpected financial loss or windfall
* Increase or decrease in income of spouse.
There are a lot of factors that go into a financial plan and even more that may indicate the need to adjust it. Especially when they correspond with changes in your life, all the adaptations can get confusing, which is where a financial planner can prove invaluable. There are always financial professionals who can help you create a plan that is tailored to fit to your lifestyle, needs and ongoing changes. It's good to choose one with whom you can cultivate an ongoing relationship so you can travel the road together.
It is also wise to review your plan at least annually to see how it is performing, even if your life has been pretty stable. Just because life isn't throwing roadblocks at you doesn't mean the investment market has been smooth, and that you can ignore your plan and let it ride.
Like when you are on a long road trip, you want to know where you are going and how you are going to get there. Even if it takes multiple stops at the mini mart to get treats to ensure peaceful travels, it's all worth it when you arrive at the final destination. What is life but a very long trip and your financial plan your road map through it?
Paul Anderson is an investment advisor and Partner at Moneywise Wealth Management. He is also a host of the Moneywise Guys radio program on KERN 1180 weekdays 10 a.m. to noon. His website is www.MoneywiseGuys.com. Securities offered through: brokersXpress, LLC, Member FINRA/SIPC/NFA a Registered Investment Adviser, Corporate Office: 311 W. Monroe St., Suite 1000, Chicago, Ill. 60606, www.brokersxpress.com, 888-280-7030. These are Anderson's opinions, not necessarily those of The Californian.
