Deep Powder
Over New Year’s I was skiing with my family in the
Washington Cascades in some of the best snow conditions I can ever remember:
170 inches of deep, soft powder….so deep you could stick your ski pole into the
snow and it would not stop going down…down. As you might imagine, ski
conditions were fantastic.
We did some off trail skiing into what some might refer to
as “backcountry”. To get there, we had to traverse through forested areas with cliffs,
shelfs, and drop offs. One thing that occurred me trekking out in this was the
“problem” one might have if one “slid” off the trail and head-planted into this
deep, deep powder…..it could be potentially deadly because it would be so hard
to get out of on your own.
So what does this have to do with financial planning? Two
words: “risk management”. Just as in
investing, off-trail skiing has certain risks you don’t find when skiing the
“groomers”. Risks include getting lost, getting injured far from help, hidden
obstacles under the snow like rocks and fallen trees, or ironically, snow that
is SO beautiful it has a seductive charm that can lead to a problem, such as a
deep fall from which extraction is quite difficult.
We can take precautions to manage risk while skiing in the
backcountry that improve our odds of success: don’t ski alone; carry a GPS
device; carry safety equipment that may help you “dig out”; if you don’t know
the area, go with someone who does; and most of all, know your limitations and
abilities.
Just as in backcountry skiing, there are precautions we can
take to manage personal financial risk through financial planning. One element of this involves preparation. Preparation comes in the form of
information gathering, organizing one’s financial affairs, and setting goals as
part of a plan. A good financial plan provides discipline which helps reduce risk by adhering to the goals of the
plan, such as budgeting or savings goals, tax or estate goals, and discipline in investing. A formal
investment plan, and the discipline to stick with the plan for the long term, can
significantly improve the likelihood of achieving your financial goals.
Having a sound financial plan is like skiing on a trail you
know is secure, it provides a rational roadmap to keep you on course with your
financial and life goals and reduces the risk of a “headplant”. It’s also about
knowing what you don’t know….if you are
skiing backcountry, it is important to know about snow conditions, terrain, or
how to find your way back down safely. The analogy to financial planning is
guessing or not knowing if your financial plan is appropriate can increase
personal financial risks and cause one to fall short of his/her goals. And it
is important to be honest with yourself: if you truly do not understand your
financial roadmap or how your investments can work better for you, seek the
counsel of an advisor you trust.
Bob Toomey
Research Director
S.R. Schill &
Associates
