Lessons Learned: Part 1
By Gary Silverman, CFP®
Back in January, I started a series about my quest to run a marathon and the lessons I learned along the way that apply to personal financial matters. I didn’t realize it was going to be 15 weeks long. Since that was a long time ago, I wanted to round up the major points today.
No matter what the goal—running, financial, or something else—I recommend using the SMART method. That is where you make sure your goals are: Specific; Measurable; Achievable; Relevant; and Time bound.
Once you have a goal, you then want to plan on how to get there. Guessing that you’ll make the goal is not a plan.
It is easy to misconstrue a lucky one-time successful event as coming from some great ability. When it comes to investing, I have found that the bigger mistakes are made by people who had a big win at first. Luck can be easily interpreted as brilliance.
In any kind of plan, it is easy for people to think everything is going swimmingly, until it doesn’t. Ten years ago, a lot of folks found that while they thought they had enough money to live out the rest of their lives in comfort, the Financial Crisis came back and said, “no.”
When preparing for retirement you can get in trouble—meaning, financially injured—if you name the date and then force your plans to fit. You might force yourself to take more risk than you could stand, resulting in panic and a sale in a down market. You might quit your job before you have enough money to live through the variables of retirement. You might spend more in the early years and draw down your assets so as not to have enough as you grow older.
It's hard to achieve the goal if you keep changing it. But life has this habit of not going to plan, and if that happens, your goals must change. The part of your goal that changes depends on your priorities. And reality.
When it comes to investing for retirement, what happens early on can have an effect a decade or two later. If you luck into a bull market as you begin, you’ll likely end up with more money than you need (I’m certain you’ll find a way to deal with that). The reverse is also true. A bear market soon into your retirement and you’ll have a hard time catching up if you are not prepared for it.
Instead of forcing your plan to fit the reality you run up against, it is important to run the numbers and see what is reasonable. Hash out the problems that could crop up and come up with contingency plans to deal with them. Also, regularly examine how your plan is going and adjust as needed.
When you plan anything, you must be aware that even when you plan for all the contingencies you can think of, there can still be another one ready to surprise you.
This week’s surprise: I still have more tips to wrap up this series. See you next time.
Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing