So Close, Yet…

From the window of the plane, you can see all the boats below. The glistening from the sun dancing on the sea. The plane lands. You’ve arrived. You’re gliding through the airport, heading to baggage claim. The carousel goes around once. Then twice. You don’t see your bags. You wait another five minutes. Then another.

You’re dreaming of all the fun you’re about to have on your Caribbean vacation. Suddenly, the carousel stops moving. All the bags are off the plane. But, you still don’t have yours. You ask one of the airline’s attendants. They can’t find it either.

You’re getting antsy. Then frustrated. Then red-hot with rage. It turns out your bags never got on the plane. All you have is your carry-on, with an iPad and two John Grisham novels. You thought about also packing some clothes in the carry-on, just in case, but ran out of time. So, now you’re stuck.

It turns out your bags never got on the plane.

You’re not heading to the beach anytime soon. You need a whole new wardrobe.

You were so close. Now, you’re so far away.

Achieving your financial goals can feel like a similar experience. Let’s try to prevent that by walking you through the investing journey.

Achieving your financial goals can feel like a similar experience.

You’ve likely heard risk and return generally move in the same direction. The more return you’d like to receive, the more risk you’ll likely have to take. When you’re far away from a goal–say 10 years or more—you have the ability to take more risk. You’re not expected to arrive anytime soon.

This is early in the journey. The stock investor can run higher levels of equities. The real estate investor can handle higher levels of leverage (debt) and the business owner can handle having their assets heavily concentrated in the business. There are risks for sure, but each of these investors has time on their side. So, the risk of not achieving a goal, like retirement, is still a ways off.

However, the closer one gets to The Date—the goal—the more one has to reconsider the risks. You need to take another look at the funding gap between where you are and where you need to be to achieve your goal, in this case, retirement. It’s a fun exercise, looking back at your progress. It can be empowering to see how far you’ve come and how close you now sit to success.

However, the closer one gets to The Date—the goal—the more one has to reconsider the risks.

This is where I see so many mistakes happen. Either the person didn’t take time to see where they now stand. Or they didn’t understand what it meant.

You’d be surprised how widespread this problem is. It cuts across most every level of education and wealth. Here’s why:

Financial goals range in their complexity. A person may have several one-off goals, like a family vacation, a new car, a down payment on a house. These types of goals are easier to assess. They have one price tag that’s generally known. So, you can easily chart your progress.

Financial goals range in their complexity.

But, other goals are far more complex. Think retirement, starting a business, funding a college education. Generally, these types of goals are multi-year or multi-decade goals. They introduce lots of assumptions.

Will my returns match my expectations?

How should I account for inflation?

How should I account for inflation?

Will my child choose a more expensive school? Go to grad school?

How long will it take for my business to start cash flowing? How long will my retirement last? How long will I live?

There’s lots of unknowns. That’s why it’s so hard to plan. That’s why it’s hard to know whether you’re close to your goal.

That’s why it’s hard to know whether you’re close to your goal.

Is $100,000 enough to start my company?

Will 200k put my daughter through college?

Can I retire with $1 million? $2 million? $10 million?

Can I retire with $1 million?

Yes, I’ve actually been asked that. The actual answer depends on each person’s specific goals.

Here’s why taking stock is even more relevant now. A strong stock market in recent years may have pushed you far closer to your goals than you think.

You may have achieved far better results than your expected long-term return. That happens from time-to-time. The markets are not linear.

You may have achieved far better results than your expected long-term return.

So, take advantage of it. Figure out where you now stand. See how close you are to achieving your goal. It may mean you can readjust your strategy.

For the stock investor, that might mean reducing some of your stock exposure. For the real estate person, it may mean lightening your leverage. For the business owner, it might mean diversifying your assets by either selling at least part of the business or investing new cash flows outside the business.

When we’re close to a goal—financial or otherwise—it can be mentally jarring to have to reset the clock.

When we’re close to a goal—financial or otherwise—it can be mentally jarring to have to reset the clock.

So, take time this weekend, to reevaluate your position. See how close you are. Look for ways to lock in that progress.

Need help getting motivated? Think about your lost bags and the ocean that’s so close, yet so far away!

This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

This material is provided as a courtesy and for educational purposes only.

All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.