October marks my twentieth anniversary as a Certified Financial Planner Practitioner™, and I’ve worked on thousands of financial plans and reviewed many more. I’ve concluded there are no good or bad plans, only your plan, because it’s unique, and its success depends on your goals – no one else! But does financial planning work?
The strength of a financial plan does not depend on the number of pages, whether one page or a thousand. A financial plan is not a finished product you put in a file or store on a shelf. It never ends because life is constantly changing and is regularly interrupted by births and deaths, marriage and divorce, promotions and terminations, and many factors too vast to list. The beauty of a financial plan is the discovery and journey of planning. The self-discovery of your goals is invaluable, and refining them over time is priceless.
Flexibility is a vital component of a successful financial plan. The ability to adapt and change as you grow older will allow your dreams to flourish. Your plan at age sixty-five will be unrecognizable from the one you completed at age twenty-five. The goal is to keep progressing and be persistent.
Growing up, I wanted to run the football like Billy Sims and throw it like Fran Tarkenton. I wanted to be an offensive juggernaut, but when I got to high school, I played the offensive line, far from the limelight.
In high school, I wanted a candy-apple red 1965 Mustang but drove a lemon-yellow Volkswagen Beetle with a top speed of fifty miles per hour.
I was interviewing for a job at a local beach resort during my last summer of college – sun, surf, and sand. Instead, I took a “business” job working for Bank of America doing data entry in a windowless office.
I fell in love with advertising after reading books by David Ogilvy, Jack Trout, and John Caples. I wanted to be a copywriter but landed in finance after taking an investment course during my final semester of college.
I was born and raised in Southern California and thought I’d live there forever, but now I live in Austin after a stint in Connecticut.
Financial planning is great until life gets in the way. My life experiences shaped who I am today, and I would not change anything for the world. My plans did not turn out as expected, but my planning kept me moving forward and allowed me to adjust and adapt to find open doors as others closed. If I did not have a plan with a bigger picture, I would have become discouraged and quit at some point, but I kept charging ahead.
According to one report, Individuals who complete a financial plan have three times the assets of those who do little or no planning. And according to Vanguard’s Advisor Alpha® study, an advisor can add 3% in net returns for clients. A few components in the study include rebalancing, behavioral coaching, asset location, and a spending strategy – critical ingredients for a financial plan.
During the Great Financial Crisis, COVID Correction, and last year’s drubbing, our clients with financial plans were more at peace with their investment holdings, asset allocation, and goals than our clients without one. The clients with financial plans did not panic; some were opportunistic and bought the dip as the market fell. The financial plan gave us the courage and conviction to tell clients they would be fine if they stayed the course, and most did.
Our plans allow us to run several scenarios for clients when they call with questions, and we can quickly and efficiently give them answers to challenging questions and how the changes will impact their goals. In addition, we stress-test our plans against rising interest rates, sustained inflation, and stock market crashes to see how they perform under challenging situations. If needed, we can make changes.
A financial plan removes opinions from the equation because we can access reams of data through the software programs we use to help clients achieve their goals. The numbers give us confidence beyond a gut feeling of how a client’s future will fare. Of course, we have strong ideas and thoughts on how best to implement the plan.
Reflecting on the past twenty years, I’ve witnessed clients retire early, pay for their children’s college education, buy new cars, purchase vacation homes, travel the world, donate to charities, help loved ones, start a business, etc. At the heart of these life-altering decisions was the financial plan.
Last, investing without a financial plan is like flying an airplane without GPS, building a skyscraper without blueprints, or operating on a patient without going to medical school. I don’t know how people do it.
Does financial planning work? Yes, it does!
It takes as much energy to wish as it does to plan. ~ Eleanor Roosevelt
April 8, 2023
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on your asset level.
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