Matthew 6:27
I don’t believe I’ve used a scriptural reference in one of my articles before but this seems like an appropriate time to look back and see how much human nature may have changed since Biblical times. Responding to His followers’ concerns about what they had to wear and eat, Jesus encouraged them to focus elsewhere, saying: “Who of you by worrying can add a single hour to his life?”
As I write this, we are experiencing yet another market crisis, this one fueled by renewed fears regarding European economies. Once again worry abounds and people are questioning their investment strategies. While it’s natural to be concerned when being bombarded by negative financial news, there is more than one way to deal with those concerns. Warren Ward Associates is a firm which specializes in planning. We also manage investments for many of our clients but only within the context of a plan which extends through the rest of their lives - often beyond. Ignoring headlines is never easy but framing investment decisions as being just one aspect of a lifelong strategy can help. Since our clients are investors, not traders, one of our roles is helping them keep day-to-day distractions in perspective.
Although recession is a word with a specific definition, our collective sense of how the economy is doing has a power all its own. Even though this recession officially ended in June of 2009, the hundreds of thousands of un- and under-employed feel like it’s still going strong. In fact, according to a Gallup poll taken last week, 80% of us believe we’re still in recession. Mark Zandi, chief economist of Moody’s Analytics, recently wrote that “Sentiment can be so harmed that businesses, consumers, and investors freeze up, turning a gloomy outlook into a self-fulfilling prophecy. This is one of those times.” Although economists sometimes seem to be pretty far removed from the world in which the rest of us live, I agree completely with his comment. Regardless of the definition, this recession will not effectively be over until a majority of our citizens believe it is.
What influences our feelings? Some people look to holy writings but many others turn the media. Depending on your preferred news source, you are likely to get reporting which includes some sort of bias. One of the key aspects of WWA’s approach to maintaining a long term view is studying publications representing all sides of important issues. That said, there are a few people who command attention whenever they speak and the list certainly includes America’s sitting president.
Barack Obama presented his new stimulus plan to congress and the American people just prior to the publication of Zandi’s comment. Since sentiment is so critical to our financial futures, presidents almost always appear optimistic, lest people’s fears be increased. Emphasizing this fact, Businessweek recently called Obama our Confidence-Builder in Chief.
In fact, there’s nothing new about a president assuming that role. Although he campaigned for the 1932 presidential election offering more in the way of good humor and paternal advice than details, Franklin D. Roosevelt’s first inaugural address was suitably solemn. Delivered at the depths of the depression, he outlined how he hoped to govern and reminded Americans that the nation’s “common difficulties” concerned “only material things.” One of his best-known quotations is drawn from that speech: “The only thing we have to fear is fear itself”. It’s obvious that a president’s word is not law but let me quote from that speech one more time. “Finally, in our progress toward a resumption of work, we require two safeguards against a return of the evils of the old order; there must be a strict supervision of all banking and credits and investments; there must be an end to speculation with other people’s money, and there must be provision for an adequate but sound currency.” If you remember the details surrounding the banking crisis which began in 2008, you might assume that his advice went unheeded. In fact, his suggestions were implemented in mid 1933. Unfortunately, the protections he asked for were successfully lobbied back out of existence in 1999.
Recent market turmoil has not shaken our belief in the need for long term planning, nor has it fundamentally altered our investment approach. We continue to believe in the eventual efficiency of markets and have so advised our clients.
Let me close by returning to the Bible, to Matthew 6:34: “So do not worry about tomorrow; for tomorrow will care for itself. Each day has enough trouble of its own”. Whether we look back a few decades or a few thousand years, human nature doesn’t seem to have changed very much. As planners, we believe it is our job to focus on our clients’ long term goals, always attempting to constrain any urge to take tactical action in a strategic situation.
“Life is just what happens while you are busy making other plans”
Longtime readers may remember past articles in which I suggested that people as different as Albert Einstein, TV character Pa Cartwright and my mother each had something to offer those in need of financial planning advice. Today, I’d like to mention John Lennon as another possible source.
Lennon, of course, was the edgier of the two primary writers of Beatles’ songs, the other being Paul McCartney. John was comfortable commenting on a wide range of topics, making him extremely quotable. One of his most famous appears above. It comes from the song Beautiful Boy (Darling Boy), written for his son, Sean. With the recent demise of News of the World, it’s become a bit harder to keep up with Sean’s life but since he has found success as a musician, writer and actor, it’s safe to say his talent is considerable. Whether or not good planning played a role is a little more difficult to determine.
Quoting a line out of context offers an easy way for a writer to cite someone famous as being supportive of a personal opinion. At a glance, John’s may seem to be an indictment of the planning process but I think a more careful reading might lead to a different conclusion. The lines preceding the more famous ones are “Before you cross the street, Take my hand”. Reflecting on John’s advice to his son, I’m not sure he’s so much suggesting that planning isn’t important as he is that a plan has no value unless it is acted upon. To put it more simply: plans, once conceived, should be executed.
It might seem unlikely that anyone would go to the trouble and expense of preparing any sort of plan then ignoring it but that’s something we see from time to time. Periodically, a big city attorney or salesperson will come to town offering a free dinner which includes a presentation describing all the ills which can be resolved with a revocable living trust. Even though the benefits of the trust are sometimes overstated, at least a few of the attendees always spend big bucks on these documents. We generally learn of the purchase when a client bashfully produces a large three-ring binder which begins with a few personalized pages followed by a hundred or so more of boilerplate containing a lot of blanks which they must fill in. Sometimes, they ask us for help completing the forms. Sometimes, they simply ask what they’ve purchased.
Typically, these binders include a will and other useful documents but focus on the trust, a legal strategy which can be useful in avoiding the probate process - assuming that’s the best course of action. I have written before that trusts have their place, as does unsupervised probate estate settlement. What we object to is people being encouraged to spend a lot of money on a binder without knowing exactly why they are doing so. As financial planners, we believe that such a document may be useful as part of a more comprehensive strategy but that a bound revocable trust alone does not constitute a financial plan. We are happy to help people complete these documents but we often find ourselves feeling that a local attorney could have provided something simpler, more personal and almost certainly at lower cost.
On the other hand, we have encountered situations in which people had begun a completely appropriate plan then either never completed it or failed to add the signatures which would render it legally binding. So far, with the help of various attorneys and CPAs, we have been able to accomplish what we believed the person’s wishes to be. That process is always painful for those left behind. It also takes additional time and costs more money to resolve a situation that could have been dealt with much more easily in advance.
I think both of these unfortunate circumstances fall under what is to be hereinafter known as the Lennon Rule of Financial Planning: “Life is just what happens …”.
As planners, people allow us to help them deal with different situations occurring at different stages of their lives. We expect to “take a client’s hand” as she or he plans for or deals with a difficult situation of any sort. As I reflect on the song, I think it’s really a lullaby. It’s John’s attempt to reassure his son that everything will be all right and that he will be there for protection. The song opens “Close your eyes, Have no fear, The monster’s gone, He’s on the run and your daddy’s here”. It’s certainly a stretch to suggest that sufficient financial planning will hold every monster at bay but we do think that identifying potential problems and helping our clients be prepared to deal with them is a good place to begin. That process lies at the heart of the work we do at Warren Ward Associates, although we sometimes require a little help from our friends - including John Lennon.
