Do you have a financial plan? And, are you working your plan?

For me (and many in our firm), the study of financial decision making is spellbinding. Consistently, investors choose to make financial decisions they should not. Moreover, they fail to make commitments they should. These cognitive dislocations are a primary reason most households should consider a comprehensive financial plan executed by a Certified Financial Planner as the belt and suspenders approach for monetary peace. This stance is not just a feeling, as there is plenty of academic firepower behind the benefits of financial planning.

Take for example an article authored in 2006 by Dr. Annamaria Lusardi (George Washington University) and Dr. Olivia Mitchell (The Wharton School at U. Penn); their research findings showed that those who plan, achieved much higher wealth levels along with significantly higher grades for financial literacy. Moreover, planning behavior helped to explain why some were able to save as well as why others did not—underscoring the significant difference between those who plan and those that do not. In short, the focus on household financial planning is timely.

Whether we observe Social Security data pointing to a trust fund which is bankrupt by 2035, or, we look at evidence suggesting that 50% of American households have no retirement savings, the necessity to save for retirement has never been greater. At the same time, tools for saving have been enhanced, yet the choice for most is still to spend now and save later.

The steady impact of financial planning

As we contemplate ways in which Human Investing and our financial planners can have an impact on our friends at Nike, several thoughts come to mind. The first is a simple reminder…that stock markets do not always go up, and neither do stock prices. That is why it is essential to have a budget which does not rely on stock exercises for its success. Although Nike stock has been on an astounding run since late 2017, there have been plenty of years where the stock did little, and option grants were worthless for a while.

Since going public as a company in 1980, Nike stock has rewarded those with a long-term perspective. However, like the stock market in which Nike trades, from time to time, patience is necessary. Take for example November of 2015 when the stock had a parabolic rise to over $65/share only to stall, go down, and finally recapture those highs nine quarters later. That's right; it took more than two years for the stock to rebound to those highs it set several years prior.

Having been on campus and advising Nike employees for over two decades, Nike stock taking three steps forward and 1 step back is commonplace. As such, having a plan in place can have sizable, positive, long term financial implications—where employees are not forced to sell under-appreciated stock to make ends meet.

For Nike clients, having a plan serves as a GPS, allowing for each to know precisely where they are at on a consistent basis. A financial plan helps to dictate how much to save into 401(k), ESPP, as well as helps determine which stock to sell and when. Importantly, when the stock is trading near all-time highs, and college expenses or, home debt looms, being able to sell the stock and make deposits on future liabilities, confidently is a wise planning decision. Further, a comprehensive financial plan affords pro-active decision making on everything from tax withholdings to retirement timelines—giving greater confidence to those that have an idea in place.

Again, do you have a financial plan?

So, as the end of May approaches and we get into the second half of the year, do you have a plan? Are you working it? Have you looked at a spending plan or, looked out 18 months to significant future liabilities? If not, we'd encourage it. Moreover, we'd be happy to reengage those of you who have a somewhat dated plan. Alternatively, we would enjoy speaking with individuals which may be looking for good counsel about the benefits of having a plan and working the plan; an effort worthwhile regardless of market conditions or stock prices.

For more about our trademarked financial planning process hiPlan, please click here.