Stress Testing Your Financial Plan
In the current environment of COVID-19, it is understandable if you are questioning the stability of your financial plan, provided that you have one. Reviewing your life circumstances is appropriate in good and bad times, and employing a Financial Stress Test should be a part of your overall approach. This valuable tool is frequently employed by the ultra-wealthy, however, you don’t have to have a net worth of hundreds of millions to benefit from it.
The goal of a Financial Stress Test is to:
- Mitigate potentially damaging economic, legal, and health issues.
- Identify opportunities that can help you maximize the growth, protection, and distribution of your assets.
- Increase your confidence and peace of mind.
- Create a repeatable process to help you stay on track, especially as your circumstances change.
A Financial Stress Test starts with a thorough discovery of what matters to you most and what is unique to your situation. Then, and only then, should solutions be presented to address those specific goals and needs. Finding the right tool, whether a particular type of trust, a different insurance arrangement, or a more appropriate asset management approach, is the least challenging part – uncovering what truly makes you tick and why is what is most important.
This process is not about someone asking you a bunch of questions and simply cataloguing your answers. It’s about implementing a defined process that encourages purposeful and direct conversation. So, before you begin to share what is important to you, your first decision is to determine who you will trust with your goals, dreams, and future. We recommend you work with a qualified fee-only, fiduciary financial planning professional who has experience in performing Financial Stress Tests.
When a Financial Stress Test is implemented correctly, the qualified planning professional will thoroughly examine your estate plan, investments, insurance coverage, retirement plan, and other areas unique to you and will do so in conjunction with your needs and goals. Upon a thorough analysis, your trusted advisor may bring in, with your approval, other professionals to create a team that will help you establish a “master plan” to help you achieve your goals. That said, it is a mistake to do this in a piecemeal fashion because all areas of your life are intertwined and should be examined holistically.
If you are a business owner, the Financial Stress Test addresses another dimension. Not only do you have to think about yourself and your family, but you must also consider the future of your business. You may need to address topics such as employee benefits, business succession, dealing with incapacity, or protecting your business’s assets.
Whether you are conducting a Financial Stress Test as an individual, a family unit, or a business owner, having a systematic way of helping you focus on what is important only works for your benefit. Plus, each time you go through the process, you will gain greater confidence that you are on track, and if you’re not, what you may need to adjust. Increasing your confidence now can help increase your quality of life and may ultimately help reduce stress.
Here are a few takeaways:
- If you have the slightest doubt, or if you’ve never done one, it might be time for a Financial Stress Test.
- The process is about achieving your goals, not about selling you financial products or strategies.
- A well-done Financial Stress Test puts you in greater control of your future.
- Effective testing helps isolate the potentially distracting emotions that are inextricably tied to your money and your future.
- The results will help you confirm whether you are on track or not. If not, the sooner you know, the sooner you can make adjustments.
If you want to learn more about conducting a Financial Stress Test with one of our financial advisors, we encourage you to go to www.smithbrueradvisors.com or call 1 (800) 387-3487.
Smith Bruer Advisors is a fiduciary, fee-only registered investment adviser (RIA).