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April 29, 2019

Financial Planning Medicine


Spring 2019 Quarterly Newsletter

Author: Chason Trahan, CFP®, CLU®

Estimated Read Time: 3 minutes


Harvey Penick in his “Little Red Book” wrote, “When I ask you to take an aspirin, please don’t take the whole bottle.” Although Harvey was talking about taking golf lessons to the extreme, we can certainly find some parallels in financial planning.


Let’s look at four risks in financial planning to understand the importance of finding balance.


  1. Financial Markets Risk: Our prescription here is diversification. Put simply, diversification is owning different asset classes and different types of investments within those asset classes. Diversification leads to lower volatility and better risk-adjusted returns in the long run. However, we must also find simplicity within our diversification. Being overly complex in an investment strategy can lead to additional unforeseen risks. Simple solutions are not only easier to understand but they are also easier to follow in down markets.
  2. Liquidity Risk: Everyone needs an emergency fund. The amount is specific to each individual, but everyone has a need. However, we must also be aware of not having too much in savings. A look at the current Consumer Price Index numbers will show the costs of goods and services are increasing over time. If we have too much in our savings, we might not be able to keep up with the rising costs of food, shelter and medical care.
  3. Mortality Risk: Human capital is an important consideration when building a financial plan. Human capital is the present value of a person’s ability to generate income. Your human capital is dependent upon your age, occupation, income and those who are dependent on that income. A common solution here is life insurance. With so many types of policies and availability of individuals willing to sell you a policy, it can be easy to buy an unsuitable amount or inappropriate type of policy.
  4. Longevity Risk: Yes, living too long is a risk. We start protecting against this early by reviewing our retirement savings rates. We also address this by building a safe and appropriate amount of retirement income. We might deplete assets prematurely with too high of a withdrawal rate or we might not be able to maintain lifestyle needs with too low of a withdrawal rate. Wealth accumulation tends to get the headlines, but a poor wealth distribution plan can derail the perfect portfolio.


These are just a few of the areas where we can help you mitigate risk. How we address these risks is very individualized and the medicine is different for everyone. Let’s start with a conversation.



Required Disclosures:

A diversified portfolio does not assure a profit or protect against loss in a declining market.

All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.

Estate Planning, Financial Literacy, Risk

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