One of my favorite sayings is that personal finance is much more personal than finance. For years, one of our core financial planning tenets has been to encourage our clients to pay off their mortgages whenever possible. This may be counter-intuitive. The common wisdom of the last decade was to invest that money instead. Low interest rates tell the story that you can make more money by making additional mortgage payments on the stock market. drove the
Generally speaking, this was virtually correct. Why pay off a 3% mortgage when the S&P 500 has averaged just over 10% over the long term? Simple math tells us that the wisest course of action is to put extra money in the market. But the best advice isn’t always grounded in cold, hard math.
For many clients, the peace of mind of knowing their home was paid off felt like a better option. sector has benefited greatly. Can you put a price on that feeling? In reality, the “right” decision for the client had nothing to do with monetary dollars and cents, but rather the personal satisfaction of owning the place where they lived.
The past year has highlighted that even the “right” decisions don’t always work out. Conventional investment advice may involve more risks than you anticipate. Consider the long-standing belief that a balanced portfolio of 60% equities and 40% bonds helps soften the volatility of experienced markets. 2022 has been a tough year for those who believe in this approach. Both stocks and bonds go up and down in value and are not always balanced. Instead of lowering volatility, the combination contributed to higher volatility.
It’s worth remembering that there is no “right answer” in finance. You never know what will happen in the market tomorrow, next week or next year. For us, that means we put more emphasis on the personal side of our personal finances. Questions like “Am I good enough?” or “Am I OK?” Generating returns that are one or two percentage points higher does little to answer these questions or reassure anyone that they are on the right track.
A recent reading of “Three Questions for Financial Life Planning” by George Kinder provided a framework for exploring deeper questions. We encourage you to try it out with your spouse or close friend, and he invites people to answer his three questions:
First, imagine that you are financially secure. I have enough money to meet my current and future needs. how do you live your life would you change anything? dream; don’t hold back; Describe your life as full and abundant.
Now let’s say you go to a doctor and are told you have 5-10 years to live. I never feel sick or have no “premonition” of death. What are you going to do with the time left? Would you like to change something in your life today? If so, how would you change it?
Now imagine your doctor calls and says today is the day. You have 24 hours to live. What are your feelings when facing death? Ask yourself: What did I miss? who did you miss? What couldn’t I do?
These questions envision a world where all your basic needs are met and the opportunity to focus on what matters. Think hard about your answers and spend time exploring what really matters to you. The answer may surprise you.
Questions like these get you to the heart of what’s important. Money is important, but remember it is a means to an end. what is your end goal? How you feel about your finances and your overall plan are far more important than the balance of statements.
As an example, a new client told me he bought a property in North Denver a few years ago. What was once a dilapidated area of Stockyards is now a hot market, with development skyrocketing as the neighborhood reinvents itself. was.
They were well positioned financially, but a recent cancer diagnosis left them with a thirst for simplicity. We encouraged them to consider their situation, values, goals and desire for simplicity. Ultimately, they decided to sell the property and use the funds to invest in companies that pay dividends. Could holding the assets have produced a greater return? Probably. But inflation eroded their purchasing power, and their income was tied to fixed leases while property taxes and insurance premiums continued to rise.
This decision was more appropriate for them and more aligned with their long-term goals and values. Investment has been significantly reduced. Their focus is back on spending time together. This is far more valuable than real estate has ever been able to offer.
Personal finance is much more personal than finance.
Steve Booren is the founder of Prosperion Financial Advisors in Greenwood Village. He is the author of Intelligent Investing: A Guide to Increasing Your Retirement Income. He was named 2021 Best In-State Wealth Advisor by Forbes, and Barron’s 2021 State Top Advisor. This column is not intended to provide specific investment advice or recommendations.