14th March 2022
Plan for the worst and hope for the best. Everyone is only talking about one of two things at the moment, either a disease or an invasion. However, there are other, much more closer to home events that we ought really be prepared for, but of which few have been giving much thought to, including yours’ truly.
In thinking, analysing and planning for clients’ Financial Planning, in order to be prudent, I always use assumptions that are historically close to worst-case scenario. We are much better over-shooting the mark than under-shooting the mark over multi-decades. When creating and refining a Financial Plan (MasterPlan) we must of course assume certain things, such as the length of your plan, the long term rate of returns from a chosen portfolio etc. For example, the worst average annual return during all 20-year rolling periods for S&P 500 between 1950 and 2021 was 6%, so that’s pretty close to what we assume we will achieve in our planning! At times of volatility it is easy to think that even getting 6% per year over the next 20 years might seem like pie-in-the-sky. However when we see that the best 20-year rolling period saw annual returns of 17%, we have an anchoring reference point!
Many client we work with have Financial Plans that span 20, 30, 40+ years. Based on life expectancy we are designing and refining over time, based on them living to 85 years of age or more, based on historical life expectancy statistics. However, we must not take our eyes off the fact that we might not live to that age. Just because the median suggests we might, we must be prepared, financially whatever about emotionally, for our lives to shorter than that.
This might sound strange, but from time to time in life we are reminded of just how fragile it can be, and how potentially meaningless a lot of our financial decisions may end up being! The trigger that prompted me to encourage you to prepare for not living as long as you expect was the fact that I attended a funeral of a fantastic 43 year old woman in Limerick at the weekend.
Jacqui died suddenly and most unexpectedly mid-last week. Her husband and 3 young kids have just had their whole worlds’ altered to a huge degree. During her mass, as I listened to her husband deliver an incredibly composed and beautiful few words in front of a packed church, it was not lost on me how very lucky many of us are to still be here enjoying our lives, irrespective of what age we may be. And it also reminded me to be hugely grateful to have the wonderful people in my life that I have right now. Reflecting on it afterwards, and being who I am, this terribly sad event also reminded me of the financial implications any of us face in losing a loved-one.
Quite often it takes a seismic event, in our own life or in that of someone close, to remind us of the things you ought to be grateful for, but also the things we should be prepared for. Death, whether of us or of someone in our financial lives, has a major impact on our Financial Plans (assuming we have some).
I was considering writing about the ways and means to protect oneself – but realised there is nobody more qualified or expert on that topic than one of our previous Podcast guests, Nick McGowan of www.Lion.ie (no affiliation or back-handers for us, they are just bloody good at what they do!). Nick lives and breaths financial protection, and does only protection for clients – so he and his team are THE content experts on the subject in Ireland in my view.
Nick joined us on a podcast while we were on our ‘Podcast Tribe’ journey, so if you were not signed-up to that last year, you are getting a huge bonus today! I hope you enjoy it, and more importantly I hope it helps you to be as well prepared as you need to be for a seismic and unwanted event.
Listen to the wise words of Nick McGowan here right now – cop yourself on!
I hope it helps.
If you seek a source of trusted, truly independent expertise on your investments, pensions & financial life, we can help.