Does Your Financial Plan Pass the Sleep Test?

With the exception of my wife, my grandmother is the most inspiring person I’ve ever known. I don’t know where I would be today without her. Although we didn’t always see eye to eye, especially on financial matters, I learned an extremely valuable investing lesson from her.  That lesson has to do with being able to sleep at night.

My Grandmother’s Sleep Plan

Members of the Greatest Generation, my grandparents came of age during the Depression, a period marked by severe distrust of financial institutions and an extreme aversion to risk. After my grandfather died, my grandmother had to manage her finances for the rest of her life, 28 more years. The way she handled her money reflected her upbringing, her deep dislike of risk and her commitment to her goals.

In addition to having money in accounts at several banks (to ensure that she was covered under the $100,000 FDIC limit per institution), she had a brokerage account, which was invested in CD ladders. CD ladders are CDs structured to mature at different times to ensure stable reinvestment rates. She chose this option because she did not want to shop around for the best CD rates.

Toward the end of her life, she did allow a small amount of money to be invested in conservative mutual funds. When she died, her estate was worth about $700,000.  This was her plan–simple and overly conservative, but it let her sleep soundly.

Why this was the right strategy?

Is this the right approach? Many advisors would be quick to point out what my grandmother could have done better or how she could have made more money. They would tell you that she would have had over $1 million (or $2 million or more) had she invested with them.

But for my grandmother, it was absolutely the right investing strategy. Why? Because she didn’t lose a night of sleep worrying about her money, and she died with zero debt. To my grandmother, a 100% chance of leaving a considerable estate was infinitely better than taking on risk that could hurt those odds. She did not care for beating the market and she didn’t worry about interest-rate risk, inflation or anything else, for that matter. She cared about conservation of capital.

Now, I don’t completely agree with my grandmother’s investing strategy, but I do believe that any investment strategy needs to support its owner’s goals. A financial advisor may help you conceptualize, develop and even implement plans, but you are the only person who will know whether your financial plan bolsters your aims.

How to make sure your plan helps you sleep

So, how do you determine if your plan is reinforcing your life goals? I call it the sleep test. Simply put: If you’re losing sleep due to your finances, your current plan has not passed the sleep test.

Failing the sleep test is a call to action. If you have a financial planner, it’s time to set up an appointment to discuss your concerns. If, after you’ve talked about your worries, you still don’t feel comfortable with the advice you’re getting, you should think seriously about finding a new advisor, preferably based upon a recommendation from a friend or family member.

If you don’t have an advisor, or cannot find a good recommendation, a good place to start is the National Association of Personal Financial Advisors. Members pledge a fiduciary oath to place their clients’ financial interests before their own.

A financial planner can’t tell you whether your plan is supporting your goals — only you can do that — but your planner can help determine whether your plan is on track.

As always, this blog serves to answer your questions and address concerns.  If you like this blog, please forward it on to other people who may benefit.  If you have issues or concerns, or if you have a question you’d like me to answer, please feel free to contact me or to post a comment to this blog…I read every comment, and will answer every question.  Otherwise, you can reach me through my website or via email.  In the meanwhile, take charge of your life!

About Forrest Baumhover

Forrest Baumhover is a Certified Financial Planner™ and tax professional. His firm, Westchase Financial Planning, focuses on the unique financial planning needs of servicemembers and families looking to separate or retire from active duty.

If you’d like to learn more about Forrest or his services, please check out the About Forrest page at the top of this article.

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