CFP, ChFC, CLU, CKA
Financial Wellness co-columnist Geoff Huber leads Triune Financial Partners’ retirement plan department. He’s been in the financial planning industry for three decades, focused solely on retirement plans for over 20 years. He and his team partner with credentialed third-party administrators to serve clients. Together, they work with small- to mid-sized business.Read Articles Written by Geoff Huber
Financial Wellness co-columnist Fritz Wood is a veterinary industry veteran with a special interest in finance. He works with Triune Financial Partners to connect veterinarians with experienced, independent financial planners. He is the former personal finance editor of Veterinary Economics and was a treasurer and board member at the American Veterinary Medical Foundation. He holds bachelor degrees in accounting and business administration from the University of Kansas.
We are living in a time of uncertainty and anxiety. Against the backdrop of war, a humanitarian crisis and economic hardship, we naturally wonder how world events will affect our long-term retirement plans and investment results. While the challenges warrant our attention, they don’t have to be a reason to panic about financial markets when you employ a long-term investment strategy.
Why? Imagine it’s 25 years ago, 1997:
- K. Rowling published the first Harry Potter book.
- General Motors is producing the EV1, an electric car with a 60-mile range.
- The internet is in its infancy, Y2K looms, and everyone is worried about the Russian financial crisis.
Then, a stranger offers to tell you what will happen over the next 25 years. Here’s the big question: Would you invest in the stock market knowing the following events would happen and you could stay invested?
- The Asian contagion
- The Russian financial crisis
- The tech and stock market collapse of 2003
- The “lost decade” of the S&P 500
- The Great Recession of 2008-2009
- The global pandemic
- The Russian debt default
Given everything we mentioned, what would you have done? Gotten into or out of the market? Increased your equity holdings? Decreased them?
Well, let’s look at what happened. From January 1997 to December 2021, the U.S. stock market returned, on average, 9.8% a year. A dollar invested at the beginning of the period would be worth about $10.25 at the end. Those returns are nearly identical to the stock market’s average return over its history.
How can that be? It’s because the market is doing its job. Investing in markets is uncertain and can be volatile. However, markets provide a reward for accepting uncertainty and volatility.
Patience Pays Off
A lot of negative surprises occurred over the past 25 years, but many positive ones happened as well. The net result was a stock market return that seems very reasonable, even generous. It’s a tribute to human ingenuity that when negative forces pop up, people and companies respond and mobilize to get things back on track.
Investing in the stock market is always uncertain, and that uncertainty never goes away. If it did, there would be no reward for investing. Instead, it’s the ability to accept uncertainty that provides a positive premium when investing in stocks or relatively riskless assets like a savings account.
Businessman and investor Warren Buffett said it simply and best: “Capital markets have a very efficient way of taking money from impatient investors and giving it to patient ones.”
Worrisome events illustrate that there is always a reason not to invest. But yet, markets proceed forward and upward with occasional and temporary declines along the way.
Reaping the rewards of investing in the stock market requires being a long-term investor. That is why financial life planning is essential.
We consider financial life planning to be the intentional process of defining your short-term goals (up to two years), midterm goals (three to six years) and long-term goals (seven-plus years), and then aligning your cash flow and investments to accomplish your objectives. Frankly, it’s the crystal-clear lens through which you and your veterinary practice should navigate uncertainty. It’s the only reliable, systematic way to make midcourse corrections and measure your progress.
Specifically, your goals might include the sale or successful transition of your practice, pleasure travel, the education of your kids and grandkids, gifting, charitable giving, estate planning, risk management, home projects, major purchases, or retirement. Generally, it could be anything that requires time, planning and money.
Once your goals are defined, you can determine the amount of low-risk money (cash or similarly stable instruments) to put toward short-term goals. For your midterm goals, we recommend a balanced mix of investments (stocks and bonds). Long-term funds are then invested for growth. Typically, this means reinvesting in your business, the real estate you operate out of and stocks. We call these three time-based goal categories your three buckets.
Such a time- and goals-based financial life plan now drives your decision making and enables you to have the patience that Warren Buffett references, no matter the fear-inducing messages that the media screams at us.
We can go on and on about the value of remaining rational and intentional with your financial decision making through elections, wars, inflation, economic collapse, investor mania (crypto) and everything else that grabs our attention. That is because distractions can rob us of the ability to think through things with a proper perspective.
Remember that by sticking to your financial life plan and investing in a long-term, broadly diversified portfolio of stocks, you’re not trying to predict which companies will or will not thrive. Rather, you’re betting on human ingenuity (not the government) to solve problems.
Financial life planning encompasses much more than just your investments. In addition to the advice you get from a certified financial planner, you hopefully have a strong, trusted relationship with a CPA. (Someone who specializes in working with veterinarians is a bonus.) You’ll also likely need an attorney experienced in estate planning and in advising closely held businesses and professional services firms. Finally, a fiduciary adviser firm with deep experience in corporate retirement plans, such as 401(k) profit-sharing plans and pensions, is essential. This group of professionals can work together to ensure you’re covered from every angle.
Evaluating business deals, managing disputes, navigating asset protection, uncovering tax-savings opportunities and customizing a retirement plan are all areas that require coordinated efforts. Such efforts are highly impactful when done in concert and never more important than when we face uncertainty in the world, economy and financial markets.
Plan for Long-Term Outcomes
Sound business and personal planning in the face of uncertainty helps avoid unnecessary, harmful decisions often driven by emotion. Those poor decisions frequently arise from short-term trends or fear-inducing headlines. Avoiding bad short-term choices leads to better long-term outcomes.
Intentionality, preparation and the process of planning deliver enormous positive impacts. It is always better to prepare than repair.
Are you acting on a long-term plan in the face of today’s uncertainty? Or will you need to repair after reacting reflexively and impatiently to the next “crisis”? Be sure you have a CFP and a team of professionals to help you craft your financial life plan.