I’ve been in this industry for nearly 15 years, which means I’ve seen my fair share of successes, hurdles, and mistakes. At Black Spruce Financial, we like to focus on how we can help you succeed, but I think it’s also important to talk about mistakes investors make so that you can avoid falling prey to some of the same pitfalls. Although I can point to a number of errors that are made by many individuals, one of the biggest mistakes I see people making is not bothering to properly plan for the future and not reviewing and revising their plans on a regular basis.
The Domino Effect
I find that the lack of a sound and flexible Life Plan is the biggest financial mistake because it creates a domino effect and can negatively impact you in other ways, including the following big ones.
1. Investment Mistakes
Your investment risk tolerance, preferences, needs, and goals will likely change over time. And, depending on how your investments are performing or the markets are acting, your portfolio may require adjustments sooner than you’d think. If you aren’t reviewing and rebalancing your portfolio regularly, you could potentially end up taking too much risk or being too risk averse.
Although there are investors who choose to self-direct their portfolio successfully, most people do not have the time needed to stick with it for the long-term. Lack of information or experience, and even fear or impatience, can result in changing or abandoning positions prematurely or once it is too late. This can lead to substantial losses. I once spoke with a dentist who had put all of his liquid assets into an online trading account after a temporary market downturn. He thought this would help him protect his capital and get a better rate of return than his advisor could. He ended up not having the time needed to attend to his account and regretting his decision to go it alone.
2. Lack of Insurance
Part of the purpose of having a Life Plan is to identify financial risks that could jeopardize your financial goals. These risks can include estate taxes at death, your outstanding debt, or the distribution of your assets to your loved ones.
One of the main objectives of insurance is to transfer or mitigate some of these risks so they don’t wreak havoc on the goals and visions you have for your loved ones. Insurance, along with a good will, helps ensure that your assets are distributed according to your wishes, and that your debts are paid down after you pass. If you don’t have insurance or an estate plan in place, you risk transferring problems, such as unpaid taxes or loans, to your beneficiaries.
My experience tells that a fair number of people procrastinate or even avoid the ‘insurance talk’, especially if you’re young and healthy. It’s amazing how many people want to talk about it after they realize they’re getting older, or have become sick and need life insurance. Waiting too long to have this talk can lead to poorer or more expensive coverage, or in some cases, no coverage at all. It’s important to think ahead and put in place a reasonable plan and update it as need be.
3. Life Plan Hurdles
Without someone to keep you and your family’s Life Plan on track, such as an advisor, to help you build and maintain your customized plan, it can be hard to stay on course. You have dozens of other responsibilities in your life and it can be hard to prioritize time to review and update your strategies since they are likely not your primary or immediate concern.
Furthermore, a lack of planning can impact your future and any plan you may, or may not, have in place. For example, you may choose to change to modify your investments or cancel an insurance policy after a particular life stage without realizing that these actions play an important role during another phase in your life.
And then, of course, there’s always the possibility that you may bite off more than you can chew by trying to implement a large life plan with multiple strategies all at once. Sometimes it may be better to start off with a simpler plan and build on it along the way so as to not inundate yourself or be intimidated by the process.
Unfortunately, I have on occasion seen struggles lead to people feeling despondent, emotionally and mentally, which can cause some people to freeze, perpetuating a lack of financial direction.
The Importance of a Personalized Life Plan
If you think about some of the most important professionals and documents in your life — your car insurance, health insurance, home insurance, doctor, lawyer, will, etc. – these are all things that you have to revisit on a regular basis. You must update your policies, receive a health check-up, and make sure all your information is correct and reflective of your current situation and needs. This is why a Life Plan is so important.
It’s important to receive the right professional advice catered to your needs to work toward your goals. Furthermore, this advice shouldn’t happen just once when a plan is created. It should become part of a process that includes periodic reviews and adjustments as needed. While having a plan is better than no plan, it may not serve you too well in the future if you experience life changes that are unaccounted for (such as getting married or divorced, having a baby, retiring or starting your own business). As an analogy, I like to think of this relationship with your advisor as a sailor in a boat (your family), who has navigational charts (your Life Plan), who communicates or radios in to the coast guard (your advisor) for instructions and reports on changing weather conditions, traffic, etc., in order to make the necessary alterations to the course (plan maintenance).
At Black Spruce Financial, we follow a three-step life planning process for our clients. We spend a lot of time exploring your objectives and needs, sculpting a financial plan that includes realistic goals, and reviewing and monitoring the plan periodically. This life planning process comes before we embark on any financial planning, tax planning, or succession planning, to ensure that all of these strategies are built on a strong foundation.
Evaluating Your Life Plan
It’s important to have a clear view of your life plan by creating one, and reviewing and updating it on a regular basis. If you’re unsure about your life plan or have yet to create one, I encourage you to contact us. I’m happy to offer a complimentary review and discuss your needs and goals to see if our process may be a good fit for you. I’m available at 416-553-5004 or you can email me at gino@blacksprucefinancial.com.
About Gino
Gino Scialdone is a financial advisor and the owner of Black Spruce Financial, an independent wealth management firm serving independent business owners. Having grown up in a family business and owning a business himself, Gino has a unique understanding of the challenges and needs business owners face. Offering a comprehensive array of wealth management and financial planning services, he strives to provide sound and creative strategies that meet a business owner’s short and long-term needs. Based in Toronto, Gino serves clients throughout the greater Toronto area and southern Ontario. To learn more, connect with him on LinkedIn or visit www.blacksprucefinancial.com.