One of my favorite sayings is that personal finance is a lot more personal than finance. For years, one of our financial planning principles has been to encourage our customers to pay off their mortgages whenever possible. That may sound counterintuitive. The prevailing wisdom over the past decade has been to invest that money instead. Low interest rates fueled the narrative that more money could be made by placing additional mortgage payments on the stock market.
On the whole this was factually correct. Why pay off a 3% mortgage when the S&P 500’s long-term average is just over 10%? Simple math would tell you that the wisest course of action is to put extra money into the market. But the best advice isn’t always based on cold, hard math.
For many clients, the convenience of knowing their primary residence was paid off was a better option. Oftentimes, eliminating the biggest monthly expenses for the Aid and Trust Department paid off. can you price this feeling The reality is that making the “right” decision for a client had nothing to do with the financial dollars and cents, but with the personal satisfaction of owning the place they live.
The past year has shown that even the “right” decision does not always work out. Traditional investment advice can involve more risks than expected. Consider the long-held belief that a balanced portfolio of 60% equities and 40% bonds will help offset experienced market volatility. 2022 was a tough year for those who took this approach. Both stocks and bonds have risen and fallen in value, and not always in opposite directions. Rather than reducing volatility, this combination helped increase volatility.
It’s worth remembering that there are no “right” answers in finance. We never know what will happen in the markets tomorrow, next week or next year. For us, this means giving more weight to the personal side of personal finance. Questions like “Will I have enough?” or “Will I be okay?” to gain deeper feelings of safety, trust and well-being. Earning a return a percentage point or two higher does little to answer these questions or reassure anyone that they’re on the right track.
A recent read of George Kinder’s “Three Questions for Financial Planning” provided a framework for exploring deeper questions, one that I encourage you to try with your spouse or a close friend. He encourages people to answer three questions:
First of all, imagine that you are financially secure. You have enough money to take care of your needs today and in the future. how would you live your life would you change something Dream; do not hold back. Describe a life that is full and rich for you.
Next, imagine you have just been to your doctor and he tells you that you have 5-10 years to live. You will not feel ill or have any “notification” of your death. What will you do with the remaining time? Would you change anything in your life today, and if so, how will you do it?
Now imagine your doctor calls and tells you that today is the day. you have 24 hours to live. What are your feelings as you face your mortality? Will you ask yourself: what did I miss? Who did I miss? What have I failed to do?
These questions envision a world where all of your basic needs are met and where you can focus on what matters most. Spend some time really thinking about your answers and figuring out what’s really important to you. The answers may surprise you.
Questions like these allow us to get to the heart of the matter. Money is important, but remember, it’s a means to an end. What is your end goal? How you feel about your finances and overall plan is far more important than your bank balance. money is emotional
As an example, a new client told us that he bought a property in north Denver a few years ago. What was once a seedy area in the Stockyards has now become a hot market whose development is skyrocketing as the neighborhood reinvents itself. They had valuable property but no plan for it.
They were in good financial shape, but a recent cancer diagnosis left them wanting simplicity. We encouraged them to consider their circumstances, values, goals and desire for simplification. Ultimately, they decided to sell the property and use the funds to invest in dividend-paying companies. Could they have earned a higher return by keeping the property? Possibly. But their income was tied to a fixed lease while inflation eroded their purchasing power and property taxes and insurance costs continued to rise.
This decision suited them better and aligned better with their long-term goals and values. It drastically reduced her time commitment from babysitting a large lot to simply opening an envelope every month. Her focus is back on the time together. This is worth far more than anything a property could ever have offered.
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: Your Guide to a Growing Retirement Income. He was named a Forbes Best-in-State Wealth Advisor 2021 and Barron’s 2021 Top Advisor by State. This column is not intended to provide specific investment advice or recommendations.
