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Life Without a Financial Plan: Why Financial Planning Is Important

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Jenni Y, 6/17/2021 

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Tumwater has helped my family think about our financial future– but in a uniquely holistic way.
I really value being able to ask for Ben’s advice on any financial topic, be it immediately related to our investment planning or not.
Ben sees and understands how the big picture impacts the tactical decisions he helps you make.

Matthew M, 6/17/2021 
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My first contact with Ben occurred when he was the Financial Advisor for my former employer… The first one-on-one meeting we held to discuss my financial future
was a total wakeup call (Yes, there were tears). He laid out an honest appraisal of my current financial situation and what I needed to do differently to move positively
toward a reasonably comfortable retirement. I took his sound advice to heart. Last year, I was unexpectedly laid off and that led to my decision to retire at the age of 70. I reached out to Ben and he immediately set up a time to talk about the best options for my 401K. A plan to roll the funds into an IRA was set in place and implemented by Ben and his co worker, Jackson. I am confident that Ben has my best interest at heart.
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They have helped me feel safe with my financial future and provided me a valuable resource to come to with any questions about financial decisions and planning.

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Tumwater has been a great resource for financial planning for my future and eventually my retirement. I’ve worked with Ben to find the right balance of investments that suit my long-term saving goals. I also have appreciated Ben’s help with other savings goals, whether it’s regarding an emergency savings fund, or saving for a specific purchase. He is always willing to answer my questions and explain the rationale behind investment moves. He also reviewed my 401(k) plan which was very helpful!

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I have complete trust in Tumwater, they alleviate a huge burden of stress in my life.

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Tumwater has given me a place to have my money managed, to allow the money to work for us, thereby increasing in value every day. Tumwater invests the money into funds that grow, watches those funds to stay [diversified]. You hire a Financial Advisor to focus on increasing the value of your saved money. This allows you to focus on your own profession to succeed. The money invested then grows and is there for life’s big bills, college for youngsters, retirement, etc.

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Through Ben’s guidance for over 10 years he has us brought to a comfortable financial position heading into retirement.

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We have 100% confidence that you know what you are doing which is so much more that most professionals who call themselves a financial advisor.

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Tumwater has helped to make us feel financially secure over the long run because of the sensible investment strategies Ben has employed for us.

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Life Without a Financial Plan: Why Financial Planning Is Important

Posted on:
September 30, 2021
Time to read:
5 minutes

“An investor’s chief problem, and even his worst enemy, is likely to be himself.” 

Benjamin Graham (Warren Buffett’s mentor)

Human beings are hardwired to be bad investors. One of the key findings of Daniel Kahneman and Amos Tversky is that most people hate losing money about twice as much as they enjoy making it. It’s exactly that kind of irrational, emotional approach to money that can lead us to make terrible investment decisions at exactly the wrong time, with massive consequences.

The best way we know to avoid these pitfalls in our own behavior is to expand our time horizon with a financial plan.

In this article, we explain why financial planning is important while answering several key questions:

  • Why is it that so many people feel so overwhelmed by the prospect of creating a financial plan
  • How does that anxiety translate into us sabotaging our own investments? 
  • What, exactly, can we do to prevent that and take radical control over our financial lives?

Why People Don’t Like Planning Their Finances

The amount of financial media and information thrown at us every day can often make us retreat into “do-nothing” mode.

It’s simply too much to handle. A lot of people don’t know this about me, but I really struggled with this same thing when I got started in the Financial Planning business.

I would sit down with a client and start talking about all of the financial jargon I learned in school…and they would have blank stares in their eyes.

I quickly learned that nobody cares about financial jargon.

What people really care about is how they can become confident that they will be alright, that they have the financial security to support the lifestyle they want to have through retirement. At the end of the day, we all want a competent person managing our wealth. More importantly, we want an approachable advisor who doesn’t talk over our heads.

Taking radical control over your financial future starts with 2 central realizations:

  1. You can build a retirement income you will not outlive. Even leaving an impactful legacy for your heirs is achievable for regular people like you and me.
  2. Your real wealth is not driven primarily by investment performance but by investor behavior. We must make the right financial decisions at every critical moment.

How We Sabotage Ourselves Financially

We all know the essence of what we need to do to reach our financial goals:

  • Spend less than we earn.
  • Save and invest the excess.
  • Build a plan and get diversified.
  • Stick with it to achieve our long-term goals.

Of course, there are other, slightly more complex aspects of financial planning, including careful asset management, tracking spending patterns and cash flows. But the point is, if we all know these basic financial principles, why is it so rare that someone is on track for the financial life they really want?

Over the course of a 20-year study of the S&P 500, the stock market averaged an 8.2% return each year.

stock market S&P 500

If you pair an 8.2% return with some diligent saving over the course of 20 years, you will likely reach your retirement goals. Surprisingly, the average investor in stock funds during that time got less than half the return of the stock market.

We call that gap the Investor Behavior Penalty.

It doesn’t happen because mutual funds — and stocks generally — don’t capture the returns of the stock market…they do. It’s the investors in those mutual funds that don’t capture the returns of the market.

The stock market is cyclical: it has both good times and bad times. But the average investor gets into stocks after stocks have done well and gets out of them after they’ve done poorly. In other words, the average investor is turning the old investment formula upside down – they’re buying high and selling low. Regularly. And it’s costing them a fortune.

That tells me two things. First, the investment was doing its job generating everything needed to live a good life in retirement.

Second, only investors who were able to capture those returns were the ones who invested with patience, discipline, and faith in the future. The only ones who survived were the ones who behaved well. Stocks will get us to where we need to be in retirement if we let them do their job.

The only question is: will we let them?

There is a massive difference between the returns we can get as investors through our own behavior, and the investments themselves. Not surprisingly, adding ourselves into the equation can severely impact how well our investments do over time.

And in retirement planning, we can’t afford to make any mistakes, but what if it didn’t have to be that way? What if there was a way to dramatically reduce the chances of shooting ourselves in the foot financially? What if you could somehow ensure that you would make the right financial decision to reach your goals in every money decision for the rest of your life?

We can!

Finding a Financial Advisor Who Cares

The answer to human nature’s tendency to make the wrong financial decisions at the wrong time for the wrong reasons is a meaningful relationship with a financial advisor who truly cares about you.

Of course, you need to make sure your advisor is competent, experienced, and properly incentivized, but the key thing is finding an advisor who cares about you, your family, and the goals you have for your overall financial life. If you aren’t convinced your advisor cares about you personally, you will not be able to follow her advice when it matters most.

A relationship built on trust with the right kind of advisor will keep you on the straight and narrow path to achieving your financial goals. That relationship will modify your behavior through time toward those decisions and behaviors that will move you closer to your goals and away from those things that will sabotage your progress.

That relationship will help you navigate the ups and downs of your financial life, making sure you stay on track and remain disciplined and patient until you get the results you want.

I help regular people just like you build robust financial plans that will see them through retirement. My process gets my clients to a place where they can retire with confidence and clarity. If you want to set a date for retirement, and be able to retire with confidence and clarity, download a free copy of our eBook, “How to Retire with Confidence and Clarity.” If you enjoy the eBook, be sure to join our Retirement Income Academy course!

Disclosure:

Tumwater Wealth Management is a registered investment adviser and may only conduct business in states where it is registered or exempt. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

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