Have you ever built your own house with your own tools?
You probably haven’t, but you might have hired somebody to build one for you. You may have a rudimentary understanding of how a house is built. You tell a contractor what you want, and the contractor uses his skill, tools, and expertise to build it.
You might have some idea of what you want in a house - a certain location, a specific number of bathrooms and bedrooms, and an overall style. You want these things because you have needs - the family needs a place to sleep, to be near work, shopping, schools, etc. You also might want a type of home with various amenities - maybe it’s a Tudor-style home with a hot tub, or a ranch with a three-car garage. If you decide to build a house, you have ideas of what should be a part of the house; that’s why you choose to build it in the first place.
You care that your contractor has a good track record, is experienced, and is amenable to a strong working relationship. There must be a fair degree of trust involved so that you are confident your contractor will do a good job and deliver a house that is well-constructed.
What you typically don’t spend a lot of time contemplating are the tools the contractor uses. Once you’re assured the contractor knows what he is doing, you assume the tools the contractor uses are the ones to get the job done. When meeting with the contractor, you probably don’t want to hear a long lecture about the different kinds of hammers or saws he is using. Yes, you’d want to be sure the contractor is not using the hammers to install bathroom tile, but if your interest in tools went much deeper, you’d probably building the house by yourself.
A financial plan is no different. You, the client, have needs (college, retirement, coverage for catastrophes) and wants (travel, luxuries) that will be part of your financial plan. A skilled financial planner helps you figure out which things are most important and the best way to make them a reality.
Financial planners spend a lot of time creating a plan for you; we typically don’t spend a lot of time discussing the minute details of the investment products we use. It’s not because the details aren’t important: they are crucial to accomplishing the task at hand. Some tools are useful. Some tools are needlessly expensive or complicated. Some are inappropriate for all but the most specific of situations. I have found that clients don’t care too much about the details of the investments, but definitely want to know that we know we are using the best tools to get the job done.
In addition to using the right tools, the contractor building your house must also make sure that the house looks good when the sun is shining AND that it will hold up over time no matter what the circumstances. Storms will happen. Fires happen. The house must be durable. The reason houses have roofs and gutters is that things like rain, snow, sleet, searing sun, trees, and pests fall from the sky, often unannounced, and have the potential to damage us and our things. Contractors must plan to protect us from the hazards that will sometimes come crashing down on us!
It’s the same with a financial plan. When we build the plan, we know that markets will crash several times over your lifetime. We build our plans to hold up in tough times because we know those tough times will definitely come. Financial planners know that over the course of an investing lifetime there will be numerous "financial storms" that land on us unexpectedly: wars, pandemics, political strife, financial collapses, earnings cycles.
These are not the exceptions to the plan; THEY ARE THE PLAN.
Our clients know this, but it’s always a good reminder. We plan for the financial difficulties in life that always come. During times of prosperity when the market seems to be going straight up, I’m sure my clients sometimes wonder about the fees they pay us. Frankly it’s easy to have a plan for when the sun always shines and the winds are calm. However, when the winds are howling and the future is darker, the time for planning is already past. We plan for bad times in the good times.
So, if you are client for whom we’ve constructed a financial “house,” you know that we didn’t build your house out of mud and straw. We used the appropriate tools to build something durable. We built it to look good on sunny days and to hold up in bad weather. We used the tools and materials we thought would do the best in all kinds of conditions – so you can weather the storms we know are on the way.
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