Let’s face it. The past few months have underscored the fragility of our physical and financial lives. What we accepted as routine and normal in early February has quickly been transformed into something quite uncommon today. Building a resilient financial life isn’t easy, which is why it’s relatively rare, but it can be done with the proper approach.
Voices From The Grave
Financial fragility can come from many places. I recall meeting with a very nice widow a few years ago who was referred to us by her estate lawyer. Her husband had been an executive for many years with GE and accumulated a sizable amount of GE stock. Before he died he asked her to keep the stock intact because it had performed well for so many years.
Since this single stock represented about 75% of her net worth, we advised her that this mandate from her late husband made her situation very fragile. I think GE was around $50 per share at the time. She had enough in terms of overall worth to sustain her lifestyle based on the value of the stock and assuming she was willing to lock in that value by selling a portion of her stock. Of course she would be in a very different situation if the value declined substantially and she did not liquidate any of the shares. Her deceased husband had actually, inadvertently, created fragility for his wife and she simply couldn’t find the courage to diversify and begin to build some resilience. Given her reluctance, we declined to take her on as a client since our advice was clearly going to run counter to what her husband advised.
I think about her from time to time. GE stock basically moved lower not long after our visit and never regained the value she was depending upon. Today GE stock is around $5 per share. My guess is she still has most of this stock in place, but I pray that isn’t the case.
Building financial resilience starts with recognizing that you might be wrong about how your favorite investment will actually hold up over time. Just as the case above, we have seen many clients who become enamored with a particular asset or asset category (real estate, gold, private equity, etc.) thinking that might be the key to a successful and sustainable future. In most circumstances, concentrating your investment assets in one asset class actually opens the door for fragility to enter. You sometimes have to save yourself from yourself.
Financial resilience comes about by not skipping steps in the planning process. Think about how a house is built. The contractor doesn’t start the project by putting the roof on; rather, the foundation is put in, plumbing and electrical conduits, walls, etc. before the roof. If any of the early steps are skipped, the house won’t be able to stand for long. You can’t (or shouldn’t) go straight to long-term investing without taking care to build a financial foundation for the inevitable bumpy roads along the way.
Helping clients build financial resilience is a cornerstone of our planning process.Ready for a real conversation?
Interested in how resilience and fragility impact our food supply? Take a look at this recent article from Forbes that features Will Harris, owner of White Oak Pasturers in Southwest Georgia. Will’s regenerative farming operation is incredibly impressive. We stumbled upon their website www.whiteoakpastures.com after having difficulty finding grass-fed meat locally. They have become a great resource for a wide range of meat products. Certainly worth a try.