Why make a written financial plan?

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Pepper11
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Why make a written financial plan?

Post by Pepper11 »

Bogleheads 101 says a written plan is the most important aspect of your financial life. I just dont understand the benefit. A detailed plan seems to miss the forest for the trees. If you are in the accumulation phase, when you have any available money, the plan should be to buy and buy and buy. Who cares what you buy- who cares if you are 60% stocks or 90% stocks, or if you tilt 20% value or 20% growth, or if you have an International allocation? If you keep buying, you will be fine, and I would argue this is as good as any 10 page plan out there. My plan is to buy, as often as I can and as much as I can. Would I really be better off if I wrote down a more detailed plan?
Last edited by Pepper11 on Sun Jul 19, 2020 7:53 pm, edited 1 time in total.
jajlrajrf
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Re: Why make a written financial plan?

Post by jajlrajrf »

Nobody is going take away your Certified Investor card if you don't have a written plan. For myself, I find it's good because it forces me to (a) think about the coming year (b) when I want to make a trade, I can consult my plan and evaluate somewhat objectively whether the trade furthers the plan or works against it, and (c) provides a good opportunity to evaluate how last year's plan went.
livesoft
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Re: Why make a written financial plan?

Post by livesoft »

Your plan had better be no more than 4 lines that fit on 1/8th a page. A 10-page plan is unlikely to be worth the paper it is printed on. I do know a couple that stated this to me, "John has a detailed 65-page loose-leaf notebook for me of his investment plan in case he dies."

It looks like @Pepper11 posted their entire plan to start this thread. Looks good to me!
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Triple digit golfer
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Re: Why make a written financial plan?

Post by Triple digit golfer »

You posted your plan. Looks great!
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climber2020
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Re: Why make a written financial plan?

Post by climber2020 »

A written plan can include more than contribution details.

The most important part of my investor policy statement is how to behave when the market crashes. Back in February and March, my plan instructed me to move money from bonds to stocks on 3 separate occasions. Buying multiple times on the way down while most people were panicking and doing the opposite was disconcerting (this was my first crash), but I followed the plan. Having it written down made a difference.

I also have written down financial milestones, and asset allocation changes that occur at those milestones. I spent a lot of time thinking about this when I had a clear head so I don't get greedy and second guess myself.
BradJ
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Re: Why make a written financial plan?

Post by BradJ »

This won’t answer your question, but I hope you find it interesting. I used to volunteer in a local prison, where church members would provide “life 101 advice” to the inmates who are close to being released. The number 1 indicator that you wouldn’t see them in the program again (recidivism rate s very high) is if their life plan was written down and highly detailed.
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SB1234
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Re: Why make a written financial plan?

Post by SB1234 »

Pepper11 wrote: Sun Jul 19, 2020 7:47 pm Bogleheads 101 says a written plan is the most important aspect of your financial life. I just dont understand the benefit. A detailed plan seems to miss the forest for the trees. If you are in the accumulation phase, when you have any available money, the plan should be to buy and buy and buy. Who cares what you buy- who cares if you are 60% stocks or 90% stocks, or if you tilt 20% value or 20% growth, or if you have an International allocation? If you keep buying, you will be fine, and I would argue this is as good as any 10 page plan out there. My plan is to buy, as often as I can and as much as I can. Would I really be better off if I wrote down a more detailed plan?
In my experience with a written plan, I have found out that whenever I want to make a change in my strategy, I have to reconcile the change against what is in the plan. For the first couple of times the change was easy to justify, but as time progresses it becomes more challenging to make any changes. Presumably because what I have now is l probably close to ideal for me.
Main points for me is what is my AA, and when do i rebalance. Having a written plan makes it easier to not sell during drawdowns. Most people will benefit from one. But not everyone needs it. Maybe you are one of them.
anecdotes are not data
stan1
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Re: Why make a written financial plan?

Post by stan1 »

People have different learning and behavioral styles. Neither is one size fits all. Some people like the idea of a written contract with themselves, and believe putting something in writing makes it harder to change or improves accountability. Other people feel that's silliness. You just need to figure out what works for you.
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Sufferlandrian
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Re: Why make a written financial plan?

Post by Sufferlandrian »

I just finished writing our financial plan - we never had one before, we just bought bought bought.

The whole plan is 21 pages, which includes:

Table of contents
Financial Calendar
Summaries of Accounts (purpose, goal, allocations):
-Retirement
-Education for boy #1
-Education for boy #2
-Taxable
-Emergency Fund
Summary of our after-tax savings plan
Tax-loss harvesting partner list
Annual 401k contribution calculator
Summary of rules for UTMA taxes
Rational for our US/INTL AA

I had the same thought, I wanted to capture information about all of our accounts in case something happens to me. I wanted to make it easy for my wife to see where everything was, and understand the reasons behind the decisions I've made.

It's not prose, mostly just simple tables and bullet lists.
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SB1234
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Re: Why make a written financial plan?

Post by SB1234 »

Pepper11 wrote: Sun Jul 19, 2020 7:47 pm Who cares what you buy- who cares if you are 60% stocks or 90% stocks, or if you tilt 20% value or 20% growth, or if you have an International allocation? If you keep buying, you will be fine, and I would argue this is as good as any 10 page plan out there. My plan is to buy, as often as I can and as much as I can. Would I really be better off if I wrote down a more detailed plan?
When you see that one asset is out pacing others (eg as US is currently vs. ex-US, you will start doubting and pretty soon your unwritten plan to keep buying will go down the drain. With a written plan it's easier to follow, because the decision about the strategy is separated from execution. The strategy you make when everything is calm (kinda).
anecdotes are not data
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BeBH65
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Re: Why make a written financial plan?

Post by BeBH65 »

Have you seen our wiki page?
https://www.bogleheads.org/wiki/Investm ... _statement

In your posts you have been asking questions on many topics: AA, asset location, choice of funds,...
Based on the responses on this forum you have presumably formulated a plan. To make sure that you "stay the course" it is good to write down the plan including the reason why you took the decisions you took.

In the past you have made changes to how you approach investing. A written plan can help you chart your course and keep to it.

edit:typo.
Last edited by BeBH65 on Mon Jul 20, 2020 8:22 am, edited 2 times in total.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence). | Have a look at https://www.bogleheads.org/wiki/Outline_of_Non-US_domiciles
seamonkey
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Re: Why make a written financial plan?

Post by seamonkey »

A brief plan can still record your core principles in a rational state to prevent whimsical or emotional priority changes during times of stress. It can be like your Constitution. You may not have anticipated every possible curveball but the plan can still guide you and provide clarity when there is a lot of noise.
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Re: Why make a written financial plan?

Post by Clever_Username »

Mine isn't particularly long, and I'm periodically finding omissions. But it's nice to know on such-and-such a date, I'll realign to a particular AA, increasing or decreasing these asset classes in these accounts in this order if need be.

It forced me to buy a good amount of stocks (mid-five figures' worth) at the end of March of this year. I think if I hadn't seen "hey, past me thought this through, and decided it's the right thing to do in this circumstance," I might not have done so. I made some good money and, more importantly, learned about my ability to follow a plan.
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nedsaid
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Re: Why make a written financial plan?

Post by nedsaid »

Pepper11 wrote: Sun Jul 19, 2020 7:47 pm Bogleheads 101 says a written plan is the most important aspect of your financial life. I just dont understand the benefit. A detailed plan seems to miss the forest for the trees. If you are in the accumulation phase, when you have any available money, the plan should be to buy and buy and buy. Who cares what you buy- who cares if you are 60% stocks or 90% stocks, or if you tilt 20% value or 20% growth, or if you have an International allocation? If you keep buying, you will be fine, and I would argue this is as good as any 10 page plan out there. My plan is to buy, as often as I can and as much as I can. Would I really be better off if I wrote down a more detailed plan?
Pretty much a get thar' the fustest with the mostest strategy.
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averagelonghorn
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Re: Why make a written financial plan?

Post by averagelonghorn »

I have yet to actually write it down, but that is entirely a laziness thing.

I have wavered in exact execution, but have been a buy and hold; low cost, index investor since something like 1998.

I'm lazy; don't always write plans down; but writing things down does, I believe, help you clarify your own thoughts, and if you have a partner in your adventure in life helps make sure you're on the same wavelength.

Even though I have yet to write an IPS; I have written emails to my spouse to lay out logic of how we're invested (We've talked about it plenty, too). She has asked me to write out an accounting of what accounts we have, and exactly their use.... she's smart on that, it's honestly irresponsible that she would have to hunt through years of emails to get all the details if I were to die tomorrow.... I need to get it all into one folder/binder; I am going to write it all down soon... like this week.... As part of that I'll be writing an IPS; but also at least a basic Death Book kind of thing.

All that said; if you don't have anyone depending on you; sure a written plan is probably mostly an exercise in behavioral psychology... but at the very worst; there's no harm in it..... if it turns out not to be helpful, what's the downside? You "wasted" a few hours of your life? You've probably wasted many more on other things.

Oh, and to agree with those above.... Despite my ability to use too many words, shorter is better, it is very much possible you did write out an adequate plan for now in your original post; only you can be the judge of that.
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Re: Why make a written financial plan?

Post by spdoublebass »

I thought it was odd too in the beginning. Writing it down helped me sort out what I wanted to do. It is short, not long. Few sentences. One rule I do like that I took from the forum is if I have the urge to change my plan, I have to wait a month. (I'm not talking about buying a dip or things like that).

I've had some wild ideas in my head that three or four days later were no longer appealing. However, I do think that going through that process was helpful for me.
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Re: Why make a written financial plan?

Post by DesertDiva »

BradJ wrote: Sun Jul 19, 2020 8:07 pm This won’t answer your question, but I hope you find it interesting. I used to volunteer in a local prison, where church members would provide “life 101 advice” to the inmates who are close to being released. The number 1 indicator that you wouldn’t see them in the program again (recidivism rate s very high) is if their life plan was written down and highly detailed.
+1 That makes so much sense. I believe that failure to plan is planning to fail.
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celia
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Re: Why make a written financial plan?

Post by celia »

If you became sick for a long time, how would someone manage your affairs in a way that you would want them to?

If you don't have a written goal, how do you know where you are going and when you've reached it?
Affable at 50
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Re: Why make a written financial plan?

Post by Affable at 50 »

There are many thoughtful reasons to have a written plan and I agree 100% with the earlier responses. After my father died I experienced a case study of the trappings of not having a written, accessible plan. Along with my mother, my father saved and invested well during his lifetime so that my mother would not lack for money if he passed away first. They had a well diversified portfolio and multiple income sources. By not having a written plan, my father’s plan was essentially - his kids will figure it out and guide their mother. We teamed up to do this until the day my mother passed away but I can attest to several reasons we would have benefitted from a written document.

By virtue of the fact that my father did not opt for paperless delivery of statements we able to piece things together after his death.

My parents had investments across multiple banks, multiple brokerage accounts, across several individual DRIP plans, TreasuryDirect, and many long-held paper savings bonds. The holdings included multiple workplace retirement accounts and IRAs. Aside from the bank accounts, which my mother was well aware of, the mix of investments was complex.

Having a written document or plan would have allowed my father to speak to us from the grave so that we could continue his plan and have comfort prior to making any changes that in our judgement would simplify the estate for my mother and the eventual beneficiaries of the estate.

What do they own? This inventory is important because it is needed to ensure that the tax returns are complete and accurate and allow us to update all the account registrations in a timely manner.

Why do they own what they own? This would help us understand if the rationale for maintaining similar types of investments with separate companies still made sense. To this day, I cannot understand why the portfolio was organized the way that it was.

These things may not apply to the OP at this point in his life but I wanted to share my experience.
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Re: Why make a written financial plan?

Post by sean.mcgrath »

stan1 wrote: Sun Jul 19, 2020 8:23 pm People have different learning and behavioral styles. Neither is one size fits all. Some people like the idea of a written contract with themselves, and believe putting something in writing makes it harder to change or improves accountability. Other people feel that's silliness. You just need to figure out what works for you.
Indeed. We've never had a written plan or a budget, and I'm very happy with our savings rates and investment habits. The approach has to work for you.

Why are you posting the question?

Edit, just saw this:
BeBH65 wrote: Sun Jul 19, 2020 9:20 pm In your posts you have been asking questions on many topics: AA, asset location, choice of funds,...
Based on the responses on this form you have presumably formulated a plan. To make sure that you "stay the course" it is good to write down the plan including the reason why you took the decisions you took.

In the past you have made changes to how you approach investing. A written plan can help you chart your course and keep to it.
It seems that you are absorbing a lot of information pretty quickly, which is fantastic. Writing down a summary plan might be a good way to organize it all, and to see if there is a tendency to "drift."
Last edited by sean.mcgrath on Mon Jul 20, 2020 3:43 am, edited 1 time in total.
rossington
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Re: Why make a written financial plan?

Post by rossington »

celia wrote: Mon Jul 20, 2020 1:33 am If you became sick for a long time, how would someone manage your affairs in a way that you would want them to?

If you don't have a written goal, how do you know where you are going and when you've reached it?
Agreed...
I think it is not too hard to keep your goal mentally by keeping the criteria simplified and constantly thinking about it.
BUT things can get foggy over time and writing an IPS makes sense for this reason.
Also, there are financial and life decisions that change over time (which were unforeseen in the beginning) and those changes require updating one's original goals.

Beyond that:
If you became sick for a long time, how would someone manage your affairs in a way that you would want them to?
Your POA had better do their utmost best to keep you alive and comfortable as long as you live. And they have to be your fiduciary 100%. This does not have to be written down but they had better understand the ramifications and should be your trusted choice.

And,the truth is once we pass on our heirs will have the final decision as to how to manage their inheritance no matter what we think is best.
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Redlion
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Re: Why make a written financial plan?

Post by Redlion »

I keep it simple, An Excel Spread to calculate my NW every quarter, and an Excel Spread sheet to track my Budget on a monthly basis.
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Re: Why make a written financial plan?

Post by bertilak »

Think of it as a road map that may be useful if, someday, you are no longer driving. You can make notes along the way that others may be thankful for.
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MathWizard
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Re: Why make a written financial plan?

Post by MathWizard »

A plan that you stick to is better than any other plan, written or otherwise.

I have not written an IPS or a budget. We have a separate liquidity fund (some might call it an EF),
and a plan for how to withdraw when we retire (what $ comes from what pile to manage taxes and RMDs)
and this helps us to know how much discretionary money we have after taxes and health insurance,
and so when we can retire.
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Re: Why make a written financial plan?

Post by aristotelian »

Some people need it in writing even if it is a simple plan. If that isn't you, don't worry about it.
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Re: Why make a written financial plan?

Post by cadreamer2015 »

I would distinguish between a written financial plan and an Investment Policy Statement (often referred to here as an IPS). A written financial plan could be very detailed and indeed include many pages. Our Investment Policy Statement fits comfortably on one page. I found the process of writing down an IPS useful for several reasons:

1) Actually writing something down, especially if it is at least partially intended for another person to read, understand and follow, causes you to rethink what you have been doing. In my case, I decided to prune down the number of investments, getting rid of small positions that wouldn't meaningfully influence our investment results.
2) When contemplating making significant changes, it forces you to think about consistency with your IPS. If the change you are contemplating doesn't fit your IPS, then do you need to edit your IPS or reconsider your potential change?
3) If you have a spouse or financially dependent partner, an IPS can be a great help to them if you get hit by the proverbial bus and are incapacitated or killed. I am more confident that my spouse will be able to manage our/her finances if I am unable to manage the investments.

In addition to an IPS, I think it is useful to have a complete list of your financial assets, where they are, etc. so that if you are out of the picture the person who will be managing the assets knows what to look for and where. These days it is probably also good practice to have a list of your digital assets/accounts and at least the user name - everything from accounts with utilities, FaceBook and even Bogleheads.
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corn18
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Re: Why make a written financial plan?

Post by corn18 »

I have a one page plan we wrote down years ago to keep me from doing stupid things. I love to break things that aren't broken.

I also have an 8 page diatribe titled "Corn's dead, now what?". This is for my wife so she knows she isn't broke if I die. Kids are off on their own, so that simplifies things. If we both die, it will help the kids, too.
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Re: Why make a written financial plan?

Post by flaccidsteele »

Pepper11 wrote: Sun Jul 19, 2020 7:47 pm Bogleheads 101 says a written plan is the most important aspect of your financial life. I just dont understand the benefit. A detailed plan seems to miss the forest for the trees. If you are in the accumulation phase, when you have any available money, the plan should be to buy and buy and buy. Who cares what you buy- who cares if you are 60% stocks or 90% stocks, or if you tilt 20% value or 20% growth, or if you have an International allocation? If you keep buying, you will be fine, and I would argue this is as good as any 10 page plan out there. My plan is to buy, as often as I can and as much as I can. Would I really be better off if I wrote down a more detailed plan?
+1

I agree

I never had a plan and never wrote anything down. No investment policy statement (IPS) or anything

I just kept investing regularly and when the market crashed I invested more

Worked out fine
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
TPS_Reports77
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Re: Why make a written financial plan?

Post by TPS_Reports77 »

In my personal opinion it's valuable to do. I did mine in Excel and it fits on one page. If you follow the guide in the Wiki, Step 1 is defining your goals which this was most valuable for me. I previously had the same thought process as you, save the most possible, invest the most possible. Thanks to the help of Bogleheads, I started to accumulate some decent assets and a comfortable retirement at a normal age was well within reach. At that point I started to think about other goals and how to fund them (Early Retirement, Having money for my kids when they finish school, anniversary trips etc).

Step 2 is planning for the goals so you're forced to think about sources of funding for each goal. I used the FV function in Excel to play around with real rates of return and dates. This helped me to develop scenarios with potential earlier retirement dates, how much could I give my kids, etc. It's also great for communicating with my wife who has more whimsy than me and would like to spend more of the fruits of our labor vs saving as much as possible.

Finally you get to Step 3, choosing your allocation. I set my target allocation and then the bands that trigger a rebalance.

Once I defined what was important to me and developed a conservative plan to fund these things, I feel more comfortable spending money to enjoy my life now. It's nice to take a guilt free trip or spend on something that isn't totally necessary because I'm already on a path to meet my goals.

If you send a PM, I'm happy to share my template if it's helpful.

Good luck.

TL:DR: If your goal is to save as much as possible you'll never reach it and you'll likely annoy your spouse.
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Re: Why make a written financial plan?

Post by Broken Man 1999 »

I have never had a written plan, or an IPS.

The only thing I consider is rebalancing. With a 50/50 AA, it isn't rocket science to
keep my AA where I want it to be.

And, as we age I will probably let equities increase to 60%, perhaps even higher, as we have a boatload of $$ in our bond funds. There comes a point where our bond fund is big enough, especially as we age.

But, I never forget, "Man plans, and God laughs."

If one is less disciplined, and could be tempted without having a written plan, they certainly need such written plans/IPS, lest they hurt themselves.

But, we have seen posters here who have discarded their IPSs and made moves that might end up costing them dearly. :(

Broken Man 1999
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Re: Why make a written financial plan?

Post by TPS_Reports77 »

corn18 wrote: Mon Jul 20, 2020 5:34 pm I have a one page plan we wrote down years ago to keep me from doing stupid things. I love to break things that aren't broken.

+1
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Re: Why make a written financial plan?

Post by nisiprius »

So that you will know when you're departing from it and be more aware of when you are acting on impulse.
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Re: Why make a written financial plan?

Post by pkcrafter »

nisiprius wrote: Mon Jul 20, 2020 7:54 pm So that you will know when you're departing from it and be more aware of when you are acting on impulse.
+2 to the above. Pepper, your opening post shows no plan at all--no set asset allocation, no strategy, no risk management. That is no way to handle your money.

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Re: Why make a written financial plan?

Post by Sandtrap »

Goals need plans, then hard work.
Goals and plans on paper reaffirm commitment.
More so when taped to the bathroom mirror and read daily.
As long as a goal and plan remains in the mind it is as fleeting as a random thought about what to eat for lunch.

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Re: Why make a written financial plan?

Post by flaccidsteele »

My goal and plan remained in my mind

I was indoctrinated in my teens by Buffett, Fisher, Graham, Munger, and later, Bogle

Didn’t need to write anything down. All these Legends already did that for me

They made investing sound simple, and surprisingly my experience was that it was as simple as they said it would be
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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Re: Why make a written financial plan?

Post by GMT-8 »

Before I retired, I was a technical writer, publisher and consultant. So I was always at a keyboard somewhere.
I don't have a single written IPS in the Boglehead style, but I do have some very clearly defined policies which
I have shared with my family:

Keep expenses low - they are guaranteed and earnings are not
Simplify and add lightness (from Colin Chapman at Lotus Cars but good enough for me) - consolidate accounts & holdings as much as possible until you can recite them from memory
Do an annual review and alter course on your own time - never sell in a panic
Don't lend money to relatives - life is too short for the aggravation
Realize "the man" will catch on to you eventually - be ready with a bag packed and cash on hand
(now that I am retired this is probably unnecessary)

GMT
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cashboy
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Re: Why make a written financial plan?

Post by cashboy »

Pepper11 wrote: Sun Jul 19, 2020 7:47 pm Bogleheads 101 says a written plan is the most important aspect of your financial life.
maybe not the most important, but certainly something to consider for something as important as one's finances. I have yet to see a large number of posters comment that having a plan hurt them or was a major waste of time.
Pepper11 wrote: Sun Jul 19, 2020 7:47 pm Would I really be better off if I wrote down a more detailed plan?
Would you? personal choice. some people like their plans laid out while others keep it in their heads.

would others? personal choice. maybe yes.

me? yes; I am better off. I have all things covered and accounted for. earlier this year when things tanked i looked at my plan and went to get a cup of coffee. :happy


some examples of what 'might be' in a plan:

what will your AA be 10 years from now?
what will your AA be at retirement?
how much will you save a year?
what is your $$$ target for retirement?
what will you do if the market crashes and you lose 50% of your equites value?
when will you rebalance?
what will you do if bonds go into negative territory?
what other assets do you own and what will you do with them, and when?
etc.

if you have something to look at (ex: IPS) when the world is spinning out of control around you (and which was written when things were calm) it can prevent emotional errors and provide a clear calm path ahead.

again, personal choice.

:sharebeer
Three-Fund Portfolio: FSPSX - FXAIX - FXNAX (with slight tilt of CDs - CASH - Canned Beans - Rice - Bottled Water)
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grabiner
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Re: Why make a written financial plan?

Post by grabiner »

The reason for the written plan is that you will have already made decisions when you have time to think about them, and not have to react to market news.

I made two financial moves in March that were based on things I had already put in my Investment Policy Statement:

If the after-tax yield on my mortgage exceeded the after-tax yield on municipal bonds of the same duration, and I could pay off the mortgage with little or no tax cost, I would pay it off. In March, with the stock market down and bond yields very low, both things happened; I sold stock in my taxable account, paid off almost all of the mortgage (finishing in April), and moved an equal amount from bonds to stock in my employer plan.

If my allocation to any major asset class is off from my portfolio target by 25% of its own allocation, I will rebalance. At the March market bottom, my bond allocation had gone from 12% to over 15%, so I sold some bonds to buy more stock.
Wiki David Grabiner
reln
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Re: Why make a written financial plan?

Post by reln »

Pepper11 wrote: Sun Jul 19, 2020 7:47 pm Bogleheads 101 says a written plan is the most important aspect of your financial life. I just dont understand the benefit. A detailed plan seems to miss the forest for the trees. If you are in the accumulation phase, when you have any available money, the plan should be to buy and buy and buy. Who cares what you buy- who cares if you are 60% stocks or 90% stocks, or if you tilt 20% value or 20% growth, or if you have an International allocation? If you keep buying, you will be fine, and I would argue this is as good as any 10 page plan out there. My plan is to buy, as often as I can and as much as I can. Would I really be better off if I wrote down a more detailed plan?
It might help some people but not others. Depends on you.

Same as if you benefit from tracking your gym progress. Some get strong without tracking for some it helps.
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AerialWombat
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Re: Why make a written financial plan?

Post by AerialWombat »

My IPS is just a few lines next to some entries on an Excel spreadsheet. It is there to remind me that I already thought things through and don’t need to be reactive.
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