If you asked 100 people what the purpose of financial planning is, the reflexive answer of the majority would likely be to have more money. And this underlying belief, spoken or not, is likely why financial planning so often results in under-implemented plans and satisfaction levels that score just marginally above “meh” on a scale of “pointless” to “life-changing.” 

But can we do better? I think we can, and this week, we'll discuss how. Tony will also catch us up on the market movements from the past week and what he's anticipating for the future.

Thanks for joining us!

Tim

Tim Maurer, CFP®, RLP®

Chief Advisory Officer

SIGNATUREFD

In this FLiP weekly you'll find:

• Financial LIFE Planning:

  • Can Financial Planning Really Be Life-Changing?

• Quote O' The Week:
  • Benjamin Franklin
• Weekly Market Update:

  •  It's What You Keep That Counts

Financial LIFE Planning

Can Financial Planning Really Be Life-Changing?

So, is “life-changing” even a possible outcome for financial planning, or is that lofty aim an overreach?

For the elderly widow with no heirs I met who, gripped by fears that stemmed all the way back to the Great Depression, compounded by the loss of her husband and his income (50 years before we met), worked as a legal assistant into her late 70’s, never took a day of vacation, saved more than $3 million (a meaningful portion of which resided in bags filled with U.S. savings bonds hidden behind the curtains), never spent a dime of it, and still *saved* a portion of her only retirement income source, Social Security, for whom I was able to quantify “you’re going to be ok,” move her into a beautiful assisted living facility and develop a plan to give $1 million to each of the three charitable non-profits she loved upon her passing—yes, I think financial planning was truly life-changing for her.

For the newly financially independent 50-something couple who, emerging from a heavy season of work and parenting, successfully launching their two children into adulthood, and learning through a comprehensive cost-of-living / quality-of-life analysis that they could transform their lives entirely by moving to one of a few cities that had inspired them throughout those challenging years—yes, I think financial planning was life-changing.

For the doctor who had for his entire career said “Yes” to every ask to take overtime, weekend, and holiday shifts that came available, driven by a laudable compulsion to provide for and protect his family while ironically limiting his time with loved ones to the point of strain, learning that he could well afford to say “No” to all extra shifts—and add an additional week of vacation every year until retirement—yes, I think he and his wife would agree that financial planning was life-changing.

For the couple who realized that their beach home caused more stress than joy and sold it, to the couple who downsized their primary residence and bought a place at the Cape after a health scare reshaped their priorities—yes, financial planning directly influenced these real-life, life-changing stories.

I could fill a book with the transformational planning stories I’ve personally been part of that would expand to a multi-volume series if I included those of the many amazing advisors I’m privileged to know and work with. But there’s a but:

I fear that most financial plans are mere boiler plate box checking exercises. A slight portfolio shift, a calibration of insurance policies, confirmation of estate plans, beneficiary updates, a cursory review of tax returns, a bump in retirement savings.

Indeed, all of these are and should be part of the proverbial plan. But to what end?

The exploration of those ends and the marshalling of financial resources in those pursuits  can activate our wealth , and indeed, change our lives.

Would you like a thought exercise that is often helpful in illuminating how your financial planning could be more meaningful?

One of the very first steps in most financial planning is to build a net worth statement—take what you own and subtract anything you owe; that is your net worth. With the advent of online everything, you should be able to arrive at something very close to this number in a matter of minutes.

Once you’ve arrived at that net worth number, now ask yourself this question:

“If I converted my entire net worth into cash and received it in a bag, how would I redeploy it?”

Would I buy my current house back or move elsewhere? Would I buy the same car(s), keep the same job, and work the same hours? Would I reinvest my money the same way?

What would I do differently?

In many cases, our net worth statements—and financial plans—end up being cobbled together as a combination of our circumstances, intuition, and a collection of insight that we read or receive from other people we respect and financial advisors over the course of a lifetime. But when we reverse engineer whatever financial success we’ve accrued and deploy it in pursuit of what’s truly most important, financial planning can—should—be truly life-changing.

This article was initially published in Forbes.com. 

Quote O' The Week

From the OG in wit and wisdom:

Benjamin Franklin

“Money never made a man happy yet, nor will it. The more a man has, the more he wants. Instead of filling a vacuum, it makes one."

Weekly Market Update

Yup, that's all red that you see from the markets we track this week. Tony explains how that came to be below:

• -  0.96%.SPX (500 U.S. large companies)
• -  2.26% IWD (U.S. large value companies)
• -  3.00% IWM (U.S. small companies)
• -  3.31% IWN (U.S. small value companies)
• -  2.56% EFV (International value companies)
• -  3.39% SCZ (International small companies)
• -  0.76% VGIT (U.S. intermediate-term Treasury bonds

It's What You Keep That Counts 

Contributed by Tony Welch, CFA®, CFP®, CMT, Chief Investment Officer, SignatureFD

With the impending election and differences in tax policy between the candidates, we thought it would be a good time to remind our readers of our long-standing principle - it’s what you keep that counts. Many people focus on gross returns, but savvy investors understand the importance of focusing on returns net of tax.

After all, it’s not the amount you earn on paper but the amount you get to keep that matters. Taxes can significantly erode your investment gains if not carefully managed. By considering the net returns, your investment strategy can become truly efficient and aligned with your long-term financial goals. This approach helps you make more informed decisions and optimize the real value of your portfolio.

The Message From Our Indicators

Economic data from last week largely corroborated the story of this expansion. Interest rate sensitive housing and manufacturing are experiencing something of a slump while service spending continues to buoy the broad economy. Existing home sales fell 1% in September as mortgage rates have picked up (more later) following the September Fed rate cut.

There continues to be a lack of inventory given the so-called “lock-in” effect whereby would-be home sellers do not wish to part ways with a lower-rate mortgage. New home sales did rise 4.1% last month, offsetting some of the existing home sale weakness. Additionally, we got a flash update of the S&P Global Purchasing Managers Index (PMI) for October. The total composite edged higher and remains firmly in expansion, but it has become a tale of two sectors. The manufacturing PMI showed contraction for the fourth consecutive month. However, the service PMI more than offset the manufacturing weakness with a robust growth number. The service sector is a bigger driver of growth in the U.S. economy, so the expansion looks poised to continue, but not all sectors are firing on all cylinders.

Though it may be surprising to see interest rates rising following the Fed rate cut, the pattern is consistent with other historic easing cycles. Longer-term bond yields have been discounting an easing cycle for much of this year. Economic surprises have swung from negative to positive in recent weeks, partially explaining some of the moves higher in yields. Additionally, the market has begun pricing in potential election impacts and prospects for a higher floor-on-trend inflation in the upcoming years. It remains to be seen whether the policies would result in higher inflation, but for now, that is the bond market’s read of the likely policy mix (i.e., easier monetary and fiscal conditions with ongoing protectionist trade policy).

Historically, a 10-year Treasury has traded at about a 100 basis point spread to the Fed policy rate under neutral policy conditions. The Fed believes that a neutral policy would be about 3%, implying a fair value for 10-year Treasurys around 4-4.25%. The speed at which interest rates have backed up has given the market some mild indigestion, but we don’t believe that current rates are too much of a cause for concern over the longer term.

Turning to the fundamentals, corporate earnings season has been heating up. According to WisdomTree, 163 of the S&P 500 companies reported earnings through last Thursday. The growth rate has only been 2.4%, but there are some stark differences between the sectors. The Energy and Industrials sectors have thus far reported earnings contraction, while Tech, Communication Services, Utilities, and Financials have all reported notable earnings growth.

Profit margins have still been expanding for the Tech sector but we would note margin contraction in Consumer Discretionary. Some individual earnings reports indicate that consumers are beginning to pare back spending on discretionary items, which have seen more significant price increases in recent years. Regardless, deep bear markets have typically developed due to broad and sharp earnings decreases. For now, corporate earnings are growing, helping to support the bull market.

Have a great rest of your weekend!

Tim