Successful financial planning is the skillful management of your assets and capital. Capital can take many forms — financial, human, social, intellectual. But before you begin, it’s important to recognize your most important asset: you.
I recall a conversation I had with a CEO who had witnessed his company stock’s retracement from a high of $140 a share to $35 a share. During those highs, his high net worth had allowed him to substantially elevate his lifestyle. He had the world by the tail. Then, suddenly, his situation changed.
The experience prompted him to reflect on some of the opportunities available to him when his stock was flying high. He looked back on them with regret. Through this reflection, he realized there was so much losing during all of his winning.
Good times are among the toughest to manage because there is so much to be done to keep up with the accelerating pace of business.
What Will You Lose?
The toll was not only financial. He was putting in a lot of hours and hardly slept. He didn’t give much thought to his health, family, financial position, or purpose.
When his business faltered and his stock values collapsed, the toll on his physical, mental and spiritual health became clear. His health and familial relationships had deteriorated. It’s usually in the wake of a health scare or a financial jolt that we come back to Earth and ask, “Why do I do these things? What is this for? What do I want?”
These questions are crucial.
Where Should You Focus?
Think about and list your purposes, values, priorities, and aspirations — exercise, family time, relaxation, travel, living conditions, etc. — and work them into your schedule. Put the seven things that are most important to you on a calendar every week. Think about how your financial standing can support the things on this list. Then summon the discipline to execute.
Keep in mind that secular bull and bear markets are triggered by a consistent set of dynamics, namely P/E ratios. Respect them. With the S&P 500 up over 29% in 2019 and P/E ratios hovering around 24/25, we’re in place today, not unlike during the 1999 dot-com surge and the 2007 real estate boom. We know how those ended.
These are interesting times. Revenues and market values are at all-time highs. There’s money to be made. Everyone is pushing hard, and virtually every company is competitive. Executives are being asked to squeeze more juice from the fruit. These sky-high markets can have high levels of positive impact on your priorities.
But remember: What matters to you? How do you want to help your family? What is the legacy you want to impart? It’s essential to think seriously about these things; define them and then execute.
What Will You Win?
Let’s shift examples. How can you align your investment portfolio to support your legacy and priorities? I had a client who took a portion of his portfolio and paid off the mortgage on his house. With this debt relieved, he was in a more secure position to take on more risk with his other investments. That’s freedom.
Other clients often want to use their wealth to serve their families and pass on their values. First-level thinking suggests that you should just give your children regular remittances. Many families simply write their children checks every Christmas. But I’ve seen that strategy backfire more than it’s succeeded. What if you stop dispensing the gift? Your children might be upset, potentially creating problems.
One of my clients took a different approach. His son, in his 40s, launched his own business. My client was exploring ways to help his son — that was his what and why. But his son didn’t necessarily want his father’s direct help, so my client hired a business coach for his son. It worked. He successfully used his financial capital to invest in his son’s intellectual capital.
Another client created a family limited partnership for the sole purpose of earmarking funds to promote social capital. Once a year, he and his wife took the family to Hawaii for a one-week vacation. During that time, they would designate funds for each of their children and their children’s spouses for the purpose of generating social capital. They would challenge them to compete with each other to see who could have the greatest social impact — improve the social fabric, engage with the community, build trust — with their funds over the next year.
Invest in Your Legacy
Today we’re living in a market environment where financial capital can successfully be used to support individual values and aspirations. Planning takes on new meaning for legacy executives who devote their financial resources for the benefit of other people. Now is a great time to figure out what’s important to you and to determine if your money is aligned with these priorities.
This market won’t last forever. You wouldn’t want to miss any opportunities.
Any opinions are those of John Pulliam and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk, and you may incur a profit or loss regardless of strategy selected.
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