The Value of a Good Plan

What is the value of a good financial plan? It’s a hard question to answer sometimes. What price do you put on sleeping well? How do you put a dollar value on mistakes avoided? Can you quantify the feeling of knowing that you’re not getting ripped off?

As you can see, many of the benefits of good financial planning derive from the comfort of knowing that you’re on the right path. However, sometimes, we can see very clearly the costs in dollars and cents of not having a plan.

According to a recent report by the Federal Reserve, Americans saw their net worth drop by 2% from 2010 to 2013, falling to $81,200. In case you’re thinking that only regular Americans lost money, the wealthiest top 10% of Americans saw their median net worth drop from $2.0 million to $1.9 million. (The amounts are adjusted for inflation.)

During a three-year period where the stock market grew 80% and housing prices recovered, Americans – even rich, high-income Americans – managed to lose money.

How is that possible?

They didn’t have a plan.

Instead of rebalancing into stocks, individual investors poured out of the stock market in late 2008 and early 2009 and never returned. Indeed, those with money still in the stock market continued to take money out – albeit at a slower pace – until just recently.

The vast majority of Americans – even high-income and wealthy Americans – missed out on much of stock market recovery from 2010 to 2013. Instead, an investor with a plan would have seen his or her portfolio grow 30% adjusted for inflation over that same period if they owned a low-cost, globally-diversified portfolio with 60% in stocks and 40% in Treasury bonds.

If you couple that portfolio growth with saving for retirement and paying down your mortgage, your average American should have seen dramatic improvement in their net worth since 2010. Instead, they saw their net worth stagnate in the midst of a booming stock market.

That’s what having a plan does for you. On a day to day basis, it’s hard to notice how much you’re moving forward, but, over time, you find yourself miles ahead of where you would have been without the plan.

About Mark Helm, CFP, EA

Mark Helm is a Certified Financial Planner and Enrolled Agent. He is the founder of Helm Financial Advisors, LLC, a fee-only financial planning firm dedicated to helping people reach their life goals.
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