7 Jul 2017
The North Korea Plan
By James Goodman
Senior Adviser James Goodman explains how we make sure you have a plan which gets you where you want to be regardless of any surprises along the way.
A friend and I were enjoying lunch the other day when he asked what I would do for our client's finances if the world took a big sudden downward turn?
We came up with an example world event trigger. In hindsight, a Greek banking system collapse would have been the appropriate trigger, given our plates were piled with baby octopus and haloumi. Nonetheless, we decided upon the far more provocative example of North Korean dictator Kim Jong-un launching a nuclear missile.
"What would the reaction be at Goodmans?" asked my friend. Would there be stop loss selling of shares by our Money Management team? Would we rush towards ultraconservative investments? Would it be panic stations?
My answer was clear and unequivocal. It's not what you do after such an event that matters most; it's what you do before. If your plan can't handle a 20 percent share market fall from one day to the next then you've got the wrong strategies.
Investment management
My friend was really thinking about investment management. Of course a plan for achieving your most important goals needs to cover a lot of other areas, but the same principles apply. For example, if your plan doesn't recognise early on that you're spending more than you can afford – you've got the wrong strategies. And if your plan doesn't consider the possibility of a radical change in health - you've got the wrong strategies.
That's not to say any of these things will definitely happen. Though I suspect you get the picture when I highlight it matters many times more what you did before the share market fell, before you get to retirement without enough money, and before any big health event.
Some surprises
So as not to get too pessimistic about it, there are some positive surprises that may have a big impact on achieving your goals as well. A substantial rise in income? Save some of it before you're used to spending a lot more. Your investments catch a big wave? Know when it's time to bank some gain before a major dumping has you back to square one. Aunt Mildred (who you never got on with) leaves you a tidy sum in her will? Well, imagine what could have happened if only you'd been nicer to her? (I'm joking.) What's your pre-existing plan to get a surprise inflow straight to work before you miss earnings or tax opportunities?
There are plenty of examples of shocks that should be considered. In our years of experience though, there aren't many which can't be predicted in a broad sense and allowed for in a plan via mitigation or leverage.
We can't predict the future. But, what we can do, is make sure we understand very clearly where you want to get to in your life, and then develop a thoughtful plan which gets you there regardless of surprises along the way...North East Asian despot surprises included.