Surviving the Financial Planning Stress Test

Surviving the Financial Stress Test

In Asset Allocation, General Financial Planning, Investments, Market Review, Retirement Planning by Chip Hymiller

As we help clients make long-term financial decisions, we also like to consider the probability of various negative outcomes.  We call this the process of “stress-testing” a person’s financial plan.

While we consider ourselves generally optimistic people, we believe that it is both important and helpful to also think about “worst-case scenarios” – those financial uncertainties that have the potential to derail financial goals.Surviving the Financial Planning Stress Test

In some cases, we may assume lower than expected investment returns or higher than expected tax and inflation rates.  We might also consider the impact of unforeseen medical surprises as we help clients plan for future cash flow needs.

So why is it helpful to discuss and plan for these negative and downright pessimistic financial possibilities?  The answer to this question depends on who you ask:

  • From our perspective, we believe that by stress-testing and addressing some of the things that can go wrong, we can reduce the potential financial impact of the event.  In doing so, we can help increase the odds that our clients stay the course and ultimately achieve their financial goals.
  • From our client’s perspective, we hope that by proactively discussing and anticipating negative financial outcomes, clients can approach financial uncertainty with a sense of confidence and peace of mind.

It is our hope that by successfully “stress-testing” our client’s long term financial plans that they will maintain a laser-like focus on the big picture and not become distracted by those temporary issues that can cause financial mistakes.

Market Volatility Returns…

With that being said, there are a number of uncertainties on a global scale that are causing increased volatility in the financial markets. The rapid spreading of the Ebola virus, the emergence of the terrorist group ISIS and a generally tepid economy in Europe and (to a lesser extent) the US are all contributors to this volatility.

While returns have been exemplary over the longer term, modest stock declines in the neighborhood of 3% to 5% over the last few weeks may have tested your resolve a bit.

During this, and future periods of uncertainty and volatility, we hope that you will find peace of mind in the fact that, as Beacon’s client, your financial plan has been successfully stress-tested.  Please feel free to contact our office should you have any questions.