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Planning Points: A personal wealth plan manages expectations
Build a financial ‘ship’ that can handle rough seas
By Pete Alepra, - Planning Points columnist
Feb. 18, 2024 5:00 am
During an initial consultation with a financial adviser, the goal is to determine what situation is best for you going forward.
Even if it means you choose not to work with that adviser, you ideally should learn options that may be compatible with your situation.
People need to fully understand the upside and downside of their plan in addition to any costs involved. The goal of an adviser is to provide support, direction and guidance that will allow clients to pursue happiness in their lives.
Creating a wealth plan
Part of the initial consultation can include a customized plan that:
- Outlines your expectations of comfort, financial needs and return.
- Organizes your financial structure.
- Reflects monthly expenses and impact of inflation.
- Plans larger future expenditures.
- Lists “outside-the-box” ideas that require money.
- Identifies issues that may concern you directly or indirectly financially.
- Projects cash flow (income sources).
- Has the capability to “stress test” unknown variables (nursing home, investment performance, etc.).
- Allows for variables (return, expenses, savings, retirement age, etc.) to see their impact on your plan
- Provides an ongoing “financial health score” that reflects if you are still on track at any given moment.
Your financial ‘ship’
It is critical that your portfolio is properly allocated in a way that will satisfy your personal long-term financial needs.
But your financial ship must be built in a manner that does not allow unacceptable waves to impact your overall comfort while it is at sea. There is a trade-off between a slow-moving, stable ship and one that is faster and lighter but does not provide as much comfort in stormy seas.
Understanding the upside potential is important, but it is more important to know the potential downside in your account value during uncertain times.
These questions need to be answered before leaving the port.
It is not prudent to rebuild your ship while at sea when a higher level of emotion is present, and doing this can sometimes alter the long-term success of your plan.
Being realistic and honest with your expectations in the “building” stage will alleviate anxiety during the uncertain times when they do occur.
The priority for your journey is to balance your comfort with a return that satisfies your needs.
Using your money
Since your plan can easily show the impact of expenditures on your financial health score, it ideally will allow you to pursue “outside-the-box” ideas on how to use your money in ways that can have a positive impact on the important things in your life.
This can mean early retirement, trips, new experiences, conveniences or gifts to charity or family.
Net worth puzzle
When helping clients make financial decisions, I attempt to view their net worth and happiness as a large puzzle with many moving pieces.
Although many financial decisions are able to be measured as a numerical value, they are often just one piece of the client’s overall well-being.
My goal is to open-up the possibilities of how you can use your money today so it provides you the greatest positive impact in your life. Your net worth is measurable while your happiness is more challenging to quantify.
A customized wealth plan will help you fit these two pieces together and evaluate the true impact of your long-term net worth and happiness.
Understanding the trade-offs that come with these decisions that can make a difference in your life or others is challenging, but can be very gratifying and enjoyable at the same time.
Pete Alepra is managing director-financial adviser with RBC Wealth Management. Comments: (319) 368-7023; peter.alepra@rbc.com.
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