An important part of financial planning is managing conflicts. Perhaps the most fundamental of them is the Growth – Security conflict.
The conflict is not going away so it behooves both client and planner to find a way to deal with it.
Think about the conflict and its implications. A Russian Proverb assesses the situation pretty well:
If you chase two rabbits, you catch neither.
Thus specialization. You cannot build great wealth quickly without concentration. That involves risk and risk does not sit well with security. A compromise many use is to allocate some share of their portfolio to speculative growth and the rest to predictable growth. Maybe 10% speculative or situational, and 90% process. A lower growth percentage as you get older, maybe a little higher early on.
People who become obsessed with investing for growth before security have usually failed to notice the nature of life.
Life is not guaranteed. You might not live, you might not be able to work. There could be gaps I working. You defend those with insurance and a liquid resource to deal with unemployment, retraining or whatever may come your way. Security before growth.
With those fundamentals in place, paying down personal debt is a huge and valuable investment plan. It is boring though, so maybe allocating some saving to investment and growth makes sense. You will need experience later. With debt gone, investment becomes serious and the old debt payments become savings. Again the allocation to growth or not.
Tools start to matter too. Tax deferred income, versus untaxed, versus taxable. Think about what is the after tax effect. You cannot spend pretax money. Pay special attention to things you do not normally think of as an asset. Employer pensions and government plans can have a very large capital value. You must notice them else you will over save. Over-saving denies the present. Under-saving denies the future. Balance please.
Allocate resources to a purpose. Education maybe. You must first know the purpose and it’s price and many do not.
Planning clarifies purpose and allows the choice of particular tools for particular purposes. Tools are important. Pay attention to what they do, not what they are. No one wants to own a drill. People want holes.
Find a helper who can tell you about the tools. Be sure one of the tools they bring is the ability to be your conscience. Self-sabotaging behaviour because of failed discipline, ignorance of choices, or just carelessness kills more plans than bad markets.
Most people are their own enemy and they need an ally.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. email@example.com 866-285-7772