Are you in position to weather the storm? (March 2022)
As you have heard me say many times, at MWP, we approach our financial & investment planning from an inductive reasoning perspective, not a deductive one as most do. It is impossible to predict what will happen tomorrow or next month or next year, so why do so many ‘experts’ continue to do so and more confusing to me, why do we put any credence in their predictions?
An inductive reasoning approach is one that is based on inputs and structure. Because you can never eliminate the impact of random events, you have to control the structure of your financial model and where your inputs are flowing. This should be based on rules established before these random events occur, so you know how to respond when they do. This is not about prediction, it is about position. Click here, if you’d like to review Rob’s article from last month on how investors continually make the same mistakes by trying to predict where the markets are going or falling prey to their emotions in times of crisis (i.e. what we’re seeing in Ukraine and around the world now). He also offers 7 tips on how to become a better investor and not fall into these same traps over and over.
From a planning perspective, this is why we build holistic plans, balanced between risk & safety/guarantees, whose success doesn’t live or die depending on how the markets perform. The plan is designed to succeed no matter which way they are going. It is all about position.
Three Things To Remember This Month:
1) Position is the first step in chess as well as financial planning. Being out of position can result in your financial model collapsing. Think of folks during the financial crisis of 2008, who had low bank balances, no equity in their homes b/c they just pulled it all out the year before to remodel their kitchens/patios, the only asset they have is their 401k, which went down 40%, and they lost their job and had to tap into that 401k, paying taxes plus a 10% penalty b/c they have no money to live. What if you’re sued for $5M and have no liability insurance? These are game over scenarios that didn’t have to be. Are you following our Rulebook for clients? If you are not sure, we can do a side by side comparison of your model next to the ‘ideal’ model. Do not find out you're out of position after the fact!
2) Position is not just defensive, it can be offensive. This hits home for clients focusing on retirement planning. If you Google ‘recommended safe withdrawal rate at retirement’, you will get results in the 3-4% range. But by being in position when you reach retirement, you could increase this to 5%, 6%, 8%+. Safely. This is an increase in retirement income of 50%-150%+, with no additional risk. Are you in position to take advantage of these strategies?
3) Position can help you make the world a better place. We are seeing horrific images coming out of Ukraine right now. The reality is there are horrific images coming from all parts of the world, including our own country, all the time. How can we have a positive, material impact on the world we live in as well as on the next generation? Let’s first differentiate between voluntary philanthropy and involuntary philanthropy. What you send to the government via taxes is involuntary philanthropy. The folks in Washington and in our respective statehouses will decide where our tax dollars go. Voluntary philanthropy is you choosing where your charitable dollars go. What if you could re-direct some of your tax dollars (involuntary philanthropy) to the charities and causes that are important to you (voluntary philanthropy), and at the same time increase your retirement income and the legacy you leave for your family? Being in position may allow you to do just this. You can make a difference, while still having a positive financial impact on yourself and your family.
I hope you and your family enjoyed the winter and have a wonderful start to the spring. Our thoughts and prayers are with the people of Ukraine and around the world who are in harm’s way, as well as those who try to protect the ones who are.