While searching the word “stocks” on Google recently (4/30/2019), some of the top story headlines are as follows: “Here are the big stocks Warren Buffett is betting on ahead of his annual meeting this week” – CNBC.com, “Sony Stock is Solid, but There Are Some Bumpy Months Ahead” – InvestorPlace, and “Is this record-setting stock market setting up investors for a fall?” – CBS News.

It's no surprise that headlines and dramatized stories are written to catch people’s attention and keep them coming back for more. Most successful stories create a strong emotional response. The author needs the reader to remember it.

We’re talking about goals…and planning! Oftentimes people define and set a specific goal but are unable to follow through for a variety of reasons. This may bring feelings of shame or embarrassment and can even cause a repeat in the process (or the lack of setting new goals entirely). We’re here to tell you that many people have been looking at goals and goal-setting in a backward way. Goals are a vital part of the momentum of life, of improving and doing better. Goals are an integral part of financial well-being. It’s time to shift the perspective.

To begin, we need an accurate understanding of the way goals connect with our financial lives. Financial plans revolve around goals. Financial plans are the roadmaps we use to navigate our finances, and our future financial lives. Here’s a look at the process:

  1. Determine the goal(s): When do you want to retire and with how much? Where would you like to live? How much would you like to leave as a legacy to charity or kids?
  2. Record current data related to the goal(s): Carefully note your income, expenses, assets, and liabilities.
  3. Make relevant assumptions: Consult with your financial planner to make adjustments based on expected inflation and expected return based on risk taken.

When you think about it, financial planning is very much like a big (REALLY BIG for some people) algebra problem: the goals are the unknowns, the variables, while the current data and assumptions are the known numeric constants. We want to manipulate this algebra problem to arrive at the answers we are really seeking: How much money do I need to make, save, and spend in order to live the life that I want?

That's the question all of our clients want an answer to. What will it take to live the life I want to live?

We can get caught up in headlines and the “5 Top Stocks to Buy Ahead of Earnings This Week” (actual headline on Yahoo Finance recently), but we need to stay focused on the GOALS and our PLAN! When we are focused only on chasing the highest return and aiming for the sky, there is a danger of becoming myopic and losing sight of our long-range goals and planning. Comfortable retirements are more often found at the end of solid financial plans that include goals and a long-term strategy than at the end of one good day in the market. That kind of gamble often includes much higher risk and lower returns.

A recent example:

I met with a friend recently who wanted my help. He had heard that waiting even a few years to invest has a huge impact on financial planning, due to compounding. He wanted to know the best way to invest for the highest return with low risk. Tall order. I reminded him that financial planning is all about goals and I asked him about his. He said he wanted to purchase a home in three years and he wanted to save $1,000,000 by the time he turns 65. His ultimate goal is to enter full-time ministry without having to spend too much time fundraising. We tackled the nearest goal first: purchasing a house. He had a nice budget laid out and we saw he was putting $1,000 away in savings every month. We discussed the idea that three years is a short time frame, and that stocks could be risky depending on when we might enter a recession.

I asked him, "Ideally, what would be the value of the house?"  “About $125,000,” he answered.  I asked how much he wanted to use as a down payment, and he immediately said, "20% to avoid PMI." My answer was simple, "Great, so you need $25,000 in 3 years."

We looked at how much he had currently in savings (assets) then ran projections including the $1,000 monthly savings (income minus expenses) to see how much of the $1,000 monthly savings could be put toward the long-term retirement goal, while not compromising the home purchase goal.  That number came out at $300 dollars. He felt as though he may be missing out on return this way, because he came into the meeting expecting to invest $500 of that $1,000/month going forward.

I redirected his attention to his long-term goals and said "You can meet your goal of buying the house you want with very little risk, so why would we jeopardize that by taking on more risk for some potential extra money?” If he saw more of a return, he would still meet his goal, but if he lost money due to a recession/downturn and wasn’t able to sell his investments at the desired price at that 3-year mark, he would lose the ability to purchase the home. His plan revolves around his goals, not trying to hit home runs in the stock market.

The lightbulb turned on and we continued to plan.

The bottom line:

Goals-based financial planning isn’t flashy, and it typically doesn’t make headlines. However, we believe it is the best way to reach your goals. Whatever your goals may be, we recommend a carefully crafted plan that you can stick to. At Sequoia, we have an entire Wealth Planning team dedicated to crafting custom-tailored plans that address your personal objectives and help you get what you want out of life.

The views expressed represent the opinion of Sequoia Financial Group. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness. While Sequoia believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sequoia’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. Past performance is not an indication of future results. Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Registration as an investment advisor does not imply a certain level of skill or training.

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Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Registration as an investment advisor does not imply a certain level of skill or training.

Think Goals-Based Planning, Not Return-Based Planning | Sequoia Financial Group


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