Every Financial Plan Needs A Solid Foundation
Should You Build On A Rock Or Sand Foundation?
THE HOUSE ON THE ROCK
Many people are familiar with the parable of the house on the rock. Some may know it as the parable of the two builders. If you're not, the message tells of one wise builder who built his house on the rock, and another foolish builder who built on sand. When they were finished they were fine looking homes, something to behold. They were proud of their work. Then one day a storm hit. With Lightening and thunder, heavy rain and strong winds, the storm lashed at the two houses. The house built on the rock weathered the storm. When the skies cleared it remained standing tall and unscathed. The house built on the sand did not fair as well. Although the structure was sound, its foundation was weak. It washed away and was destroyed.
PROFESSIONALS WITH DIFFERENT PLANS
The story doesn't say that one was a good builder and the other a bad builder. It also doesn't say that one was benevolent while the other evil. There's no mention that one had a formal education and great experience while the other lacked any formal education or experience. It's really quite simple, there were two builders who made very different choices on which foundation to build their homes.
PREPARE FOR THE STORM
While I can't predict the future, it's safe to say that at some point in the future our economy will be hit with a massive financial storm. Economic crises happen, even small ones cause significant damage. Market volatility, inflation, and other factors erode your financial house’s foundation. The impending financial storms will test the structure of your retirement lifestyle income plan. Has your advisor built your financial foundation on rock, or on sand?
A LOOSE FOUNDATION
Market-based investments, such as stocks and bonds, are exposed to the ebb and flow of economic tides. Like a sand beach, severe systemic economic storms like recessions and other major market corrections may wash away a foundation constructed of market-based investments. Even seemingly historically less risky investments like bonds may not be immune. Rising interest rates negatively impact the value of bonds within a portfolio and may erode a well-intentioned asset allocation.
SOLID INCOME FOR LIFE
Social Security, pensions, and other forms of lifetime income are the solid foundations on which you can build your financial strategy. They may insulate your retirement lifestyle from external economic pressures. These tools are a solid choice for covering many essential spending items in retirement, such as food, clothing, shelter, transportation, healthcare and so on. You may also want your non-negotiable expenses backed by these sources of income as well. Your non-negotiable items are the expenses beyond basic necessities, but that you won’t want to give up if economic conditions sour.
Every household has their own individual financial wants and needs. Make sure you choose the foundation that is the best fit for your retirement lifestyle plan.