Rebalancing Your Portfolio of Goals

rebalancing your portfolio

Last week,¬†I wrote about rebalancing your portfolio¬†– how it works and why it’s important in both rising and falling markets.

Today, I want to revisit a concept that I touched on at the very end of last week’s email:

Your “portfolio of goals”, an important idea from my friend and fellow advisor, Mike Dechiario.

Just like you probably have a portfolio of investments, you also have a portfolio of goals.

In your investment portfolio, you might have stocks, bonds, mutual funds, ETFs, or other types of investments.

Among your portfolio of goals, you might want to retire, educate your children or grandchildren, travel, volunteer, go back to school, start a business, give to charity, tithe at church, replace your car, buy a 2nd home, or ANYTHING else that’s important to you and those you care about.

But here’s the problem…

It’s one thing to think or say you want to do these things.

It’s another thing to actually put a plan in place to give yourself a sufficient degree of comfort and confidence that you’re not only on the right track, but that you can make some small adjustments along the way to keep you on the right track.

And it’s these “small adjustments” I want to discuss today.

You see, just like your investments can drift away from your target asset mix, your portfolio of goals can drift away from your financial lifestyle targets.

This is why it’s important to regularly review and rebalance your goals just like you should with your investments.

Let’s start with a simple example…

Let’s say your Ideal retirement age is 57 and your Acceptable retirement age is 64.

In addition, your Ideal annual after-tax retirement spending is $160,000, while your Acceptable retirement spending is $100,000.

I’ve written before about the importance of thinking about both Ideal and Acceptable goals. In fact, I’ve had this conversation with many of you. If you’d like to learn more about how this works and why it’s important, I suggest you read this.

Back to our example above… you have 2 goals:

  • retirement age, and
  • retirement spending

Let’s call this a simple portfolio of goals.

After going through the process of creating your personalized financial plan, we determine that you can confidently and comfortably retire at age 61 and spend $128,000 per year for the rest of your life, adjusted for inflation.

Both of these goals – your retirement age and retirement spending – aren’t at your Ideal level, but they’re both well ahead of your Acceptable goals.

With traditional “set it and forget it” planning, your financial planning work stops here.

Maybe you make some changes to your investments, your insurance, and your savings, but beyond that, you’re just hoping and praying things work out OK.

Not a great way to plan for the rest of your life if you ask me.

That’s the trouble with relying on a one-time financial plan instead of embracing ongoing financial planning.

Instead of simply hoping and praying, what if, on a regular basis you reviewed your portfolio of goals and rebalanced them.

Let’s say the market starts to drop.

It would be smart to sit down and review your portfolio of goals.

Maybe, based on where the market has fallen, you should plan to retire a year later (at 62 instead of 61) and plan to spend $125,000 per year instead of $128,000.

Or maybe a distant relative passes away and leaves $43,000 to you.

In our simplified example above, that additional $43,000 could allow you to move your retirement age up to 60 and plan to spend $132,000 per year.

Of course, it might be more important to put part or all of that $43,000 towards something else in your life.

That’s how financial planning works. You regularly review and evaluate your choices so you can make more informed decisions.

Similarly, if you get a big bonus this year or the market goes up enough, you may be able to retire sooner and/or spend more.

Hopefully you’re starting to get the idea of how this works.

This is financial planning.

Yes, you have to start with a financial plan.

Unfortunately, that’s where many financial advisors stop.

The good stuff is in the ongoing financial planning discussions, where you can make small adjustments along the way to keep things on track.

The alternative is much less frequent, potentially BIG, PAINFUL adjustments to your plan.

And your life.

I believe smaller, more frequent adjustments is the better way to go. In financial planning and many other areas of your life.

Planning should be flexible and adjust to you and life’s inevitable changes.

Where the portfolio of goals concept and rebalancing really become powerful is when you build out your own plan that reflects ALL of the things that are important to you.

When you create your own portfolio of goals.

It can add some complexity and more moving parts to your planning, but if you simply focus on the things within your control, it’s still an effective and manageable approach to financial decision making.

A better approach.

This is how I think about evaluating the financial trade-offs and choices you have. Both today and going forward.

I could write thousands of words about these ideas.

Instead, I’ll leave you with this question:

Which is more important, focusing on your portfolio of investments, over which you have little to no control, or focusing on your portfolio of goals, over which you have almost complete control?

I know the answer.

Do you?

Does your current financial advisor?

Thanks for reading. While you’re here, be sure to sign up for my weekly email newsletter where I share tips, advice, and stories about the intersection of money and our lives. Just click here to join the community.

Russ Thornton
Russ Thornton
Hi there! I'm Russ, and I help women in their 50s and 60s achieve and maintain their desired lifestyle leading up to and throughout their retirement years. Imagine being able to look forward to a comfortable and confident financial future...
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