Being Prepared
As an avid hiker having spent many wonderful trips on the trails of our beautiful Cascade Mountains, one thing one learns is how important it is to be prepared out in wild. Prepared for what? A number of things: hiking mishaps, injuries, getting lost, blisters, water and food issues, to name a few. For example, on one trip into the Olympic Mountain National Forest, I had forgotten to pack a critical component of my camp stove. I did not find out about it until the first evening, eight miles from the trailhead (and another two-hour drive back to the nearest supply store!). I “prepared” for a mishap like this by remembering to pack matches to start a camp fire. In another “mishap” on a trip to the Enchantments, I slipped on loose gravel on a downslope and re-injured an earlier tear of my left quad tendon. I had nothing for an injury like this. Fortunately, one of my buddies had packed a self-adherent leg wrap that greatly helped me continue the journey; but we still had to cut the trip short because of the re-injury. I was NOT prepared for this. Not a good Boy Scout on that trip!
In hiking and mountain climbing, preparing for contingencies
is critically important. This is no different with financial planning. There
are many ways financial planning helps one to “be prepared” for the unforeseen.
What are these “unforeseen” events?
Unexpected changes in your life or health, unexpected changes in the financial
markets, or unexpected changes in your estate plan to name a few.
Financial planning is flexible. One thing that can be done
to improve one’s preparedness for contingencies is running multiple planning
scenarios. The process of iterative “scenario analysis” can provide great
insight into how different life events or life changes can impact one’s
financial future. From this analysis, we can adjust or fine tune spending,
savings, and investment plans.
An integral part of our planning process is setting an
investment strategy for each client in accordance with their financial plan. As
part of preparing for the inevitable volatility of the financial markets, we embrace
a diversified investment strategy. This entails investing client assets
in multiple asset classes such as stocks, bonds, real estate, international,
etc. Why? It has been shown that diversified portfolios exhibit lower
volatility and higher risk-adjusted returns over time. We know the financial
markets will be volatile and we can take proactive steps to prepare for and mitigate
this factor in client portfolios.
Another way financial planning prepares one for uncertainty
is the planning process itself. A disciplined review of one’s finances, spending,
contingency planning, and an annual review all help to provide greater clarity,
reduce financial risk, and improve confidence in one’s outlook for the future.
It also places one in a stronger position to weather unforeseen changes or
events by having a stronger financial position and discipline to stick with the
plan for the long term. An insurance needs analysis can also be
incorporated into a financial plan to provide not only financial risk
assessment but also risk mitigation measures that can help one prepare for and
protect against catastrophic and unforeseen financial mishaps.
Bob Toomey, CFA®/CFP®
Vice President, Research
