Does Your Financial Plan Need a 1% Change? Episode 84

Last week, I had the opportunity to travel down to Orlando for an industry conference. Who wouldn’t want to go to sunny Florida in January? While the weather was near perfect, the speakers may have been better.
Why Do You Do What You Do?
One of the speakers at the conference referenced a famous quote by author John Maxwell. Maxwell once said, “When you find your why, you’ll find your way.”
Think about it. When I know why I’m doing something, I can do more of it. For example, when I register to run a three-mile race, it’s easier to put in the training miles, because I know why I’m making myself endure the difficulty of getting in shape. Before we do anything, it’s important to ask why we are doing what we’re doing.
Picture of David
Small Changes Make a Big Difference
During my time on the flights and in the airports, I read a book called the Compound Effect. As you may guess, the book explains how little decisions compound and can have a large effect. When we find our why, it’s important to figure out if we’re going the “right” way. We want our compounding effect to be positive.
The book illustrates the power of small changes by using a plane that’s traveling from
Los Angeles to New York City. “If the nose of the plane is pointed only 1 percent off course—almost an invisible adjustment when the plane’s sitting on the tarmac in Los Angeles—it will ultimately end up about 150 miles off course, arriving either upstate in Albany or in Dover, Delaware.”
A single, seemingly small, positive or negative decision may have a dramatic result.
Can you imagine thinking you were going to New York and you wound up in Dover? You’d be frustrated, irritated, and have to make a new plan to figure out how to fix the problem. The same thing may happen if you have not taken adequate time to ensure that your financial plan is ready for stress.
Is Your Plan Ready For Pressure?
The author is using this example to illustrate the power of bad habits, but this can also illustrate the power of good or bad financial planning. One seeming small decision to allocate a certain way may result in a wildly different result than you were expecting.
Picture of the Compound Effect Book
Later in the book, the author says, “psychologists tell us that nothing creates more stress than when our actions and behaviors aren’t congruent with our values.” Have you developed what your investing values are? While some people may think of this as socially responsible investing, I’m talking about an easier metric to gauge, and that is your risk tolerance.
Mike Tyson, the boxer, once said, “Everybody has a plan until they get punched in the mouth.” It’s easy when the market is favorable and a major bull run is happening to take on more and more risk and it may even be encouraged depending on where your recommendations are coming from.
But bear market happens, and we get punched in the mouth. After this painful experience, we sometimes figure out we need a better plan, or at least a different plan. But this is normally not the best time to be figuring out our new plan.
David at Universal Studios
Right now, when the market is up and we’re not in a crisis is the time to develop a plan or at minimum stress test your plan. Do you know the statistical probability of what you may lose if a crash happens now?
Darren Hardy, the author of the Compound Effect, said, “Unsuccessful people carry their goals around in their head like marbles rattling around in a can, and we say a goal that is not in writing is merely a fantasy.”
Obviously, I want you to be successful and glide through retirement with as much ease as possible. In order to do that, we need to have a well thought out comprehensive plan that looks at all the possible solutions available to you. Together, we can achieve that.
If you would like to receive a one-page written outline of our financial planning process, please reply to this email and we’ll forward it to you. Or you may call our office at 864.641.7955. This outline explains the steps we go through with our folks and allows you a snapshot of our process.
Until next week,
David C. Treece,
Financial Advisor
Did you miss one of our last newsletters?
You Were Made To Strive: Click here
Don’t Sit on Too Much Cash: Click here
The Power Of What We Listen To: Click here
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