At Vitruvius Capital Consultants, the heart of our service is planning. It is quite common to think that this means making investments that will let me pay my bills. We say that’s not so.
If you’re early in the process of saving, you need to know how to achieve your goals while still meeting your present needs. If you’re later in the process, or possibly even living on what you have saved, you need to know how to meet your needs while not putting your future at risk, regardless of how long that future may be.
In either case, we consider ourselves the custodian of your financial life, a role that we accept so that you can be who you are. Certainly, sometimes we need to make investment selections that pursue a goal. Just as often, we need to explain that not every circumstance demands a decision, that not every turn of the globe requires us to nitpick the next turn.
Underneath it all, we are decision analysts. We feel the most important part of that role is identifying when a decision is even necessary, and just as importantly, when it isn’t.
What follows are some examples of how we have helped real people identify these decisions, and sometimes, discover new decisions they didn’t even know they had to make.
Rick and Cheryl had worked with a financial planning firm before. When they came to us, they were concerned that their financial plan only addressed what investments they needed to make, and not exactly where their income was going to come from.
Rick and Cheryl arrived at our meeting, and we asked if local traffic had made their trip difficult. Cheryl replied, “it wasn’t a concern… We took all those twisty back roads to get here.” A little conversation revealed that Cheryl was very proud of her BMW 335, and had even made a special trip to Germany to choose her car, drive it down the autobahn, and have it shipped back to the USA. Rick was the engineer in the house (a civil engineer), but Cheryl was the gearhead.
Rick and Cheryl brought us a tremendous amount of data, every bit that we had asked for. This allowed us to go deep into statistical analysis, to not only answer the question “have we saved enough?”, But “how likely is it that we are right?”, And “what happens if we are wrong?”.
The output of that analysis was more than Rick and Cheryl had expected. Not only could they meet their income needs, but we found that across the vast majority of scenarios, Cheryl could take a new trip to Germany every 5 years for a new BMW. Needless to say, Cheryl was happy with that analysis.
This did not happen because Cheryl picked some winning investment, or because the couple was inordinately rich-they aren’t. However, if we go into a plan with a clear idea what the likely results are, and a vision of possible outcomes, even if we are wrong, we can move with confidence.
Mike and Barbara had reached a point in life where people often seek our advice: they were in their mid-50s, they had educated their children, saved carefully, and even diversified by buying a rental property, as well as saving in Mike’s 401(k) at work. Mike and Barbara were now looking at a retirement that might be 5 or 10 years away, and concerned that they were behind where they needed to be.
During conversation in getting to know Mike and Barbara, we talked about how they make financial decisions together. Mike did most of the talking. When we asked to discuss their monthly budget by reviewing their bank statements together, Mike demurred. He explained that he had trouble keeping track of a checking account with a balanced register, and had taken up the habit of cashing his biweekly paycheck, and driving from vendor to vendor to pay their bills-Comcast, electric company, Macy’s, Verizon, and so on.
This is when Barbara finally jumped in, and stated, “This Is what scares me… I have no idea what our bills are, what their balances are, or how and when they get paid. If something happens to Mike, I am clueless.”
We spent a full day with Mike and Barbara, taking them through a financial boot camp. We built them into a team who could work together to make their financial plan work in the same way they had raised their children together. In fact, Mike and Barbara were already doing the hard stuff-saving, maintaining a balanced portfolio without interference, and budgeting carefully. They simply needed the coaching to keep their ship sailing in the right direction.
Tom was one of those who had a decision thrust upon him unexpectedly. Tom was a chemical engineer for a Fortune 500 company, and had been informed that he was subject to a reduction-in-force, and that he needed to make an election about the payout of his rather generous pension within 5 days.
Tom was not fully ready to face this decision. At the time it was offered, because he was only 56! Tom was a classic engineer, who liked to fix as many inputs as he could, so he could better predict output. Tom was very worried that with low CD rates, he would not be able to face the risk of not finding new work to bridge his time until retirement.
The good news was that Dana’s work as a high school teacher allowed her to carry a significant portion of the couples bills, and that they had no children. We were able to have a detailed discussion with Tom about the amount of variation that could be expected in the output from his savings, which allowed him to look at his decision the same way he looked at chemical formulas and processes.
Tom’s initial inclination was that a joint life payout on his pension would be optimal for protection of both his own income and Dana’s. It turned out that, if he were unable to find new employment, that a lump sum payout would give him both more flexibility and more control over how and when his taxes would be paid.
Tom ultimately did find a new engineering role, which he plans to keep until Dana’s pension begins in 5 more years. Then, they will face the decision of downsizing to a beach house, or continuing to mow the lawn on their acre in northern Delaware.