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Is your financial life flexible or is it rigid and slow to change? The answer to this question bears importance at all stages of life, but particularly as you plan for retirement.
TWO MAJOR CULPRITS PREVENTING FINANCIAL FLEXIBILITY
1. DEBT
Regardless of your age, optionality is a good thing. From a financial perspective, debt is the most pervasive roadblock to flexibility. Debt often removes financial options that might otherwise be available to you. There are good reasons for debt at times, but too much debt can weigh you down and inhibit your ability to adapt.
Flexibility and liquidity are synonyms when you engage in planning for your financial future.
Author Kent Nerburn says, “Debt defines your future, and when your future is defined, hope begins to die.”
2. LIQUID INVESTMENTS
Of course, debt isn’t the only barrier to building a nimble and flexible financial life. Illiquid investments might be the next culprit on the list. Just like eating candy, maybe a little isn’t too bad, but a steady diet of illiquid investments can get you into trouble.
A BALANCED PORTFOLIO WILL SAVE YOU A LOT OF TROUBLE
In order to maintain a balance between liquid and less liquid investments, your portfolio should be viewed as a whole, not just a bunch of random parts. It’s much easier to take on debt or invest in something that’s illiquid, if you forget to consider how this impacts other components of your financial life.
If you don’t think about your financial life comprehensively and keep your long-term aspirations at the forefront, it’s difficult to make good choices. Some investment opportunities may appear attractive in a vacuum, but they could compete with your goals when considered within the context of your overall portfolio.
THE “GREAT DEAL” DILEMMA
We met with a young couple a few years ago who clearly articulated their primary goals as saving for the future, building liquidity, and paying off their accumulated student loans. As the meeting was ending, they asked for my opinion on the possibility of buying a vacation condo from a friend, “because it was such a great deal.” Taking on additional debt and illiquidity was not aligned with their goals, but the gravitational pull of the “good deal” was hard for them to resist. I suspect many investors face this same dilemma routinely.
FINANCIAL FLEXIBILITY = LESS HEADACHE
Particularly for those nearing retirement or already retired, there’s another very practical reason for financial flexibility. When the inevitable down markets appear, flexibility allows you to stay with your long-term financial plan and avoid selling at an inopportune time.
It’s important to remember that surprises and unexpected events are part of life. Financial flexibility provides a cushion that can help absorb some of the inevitable bumps along the way.
Perhaps most important of all, flexibility creates resilience and makes you stronger. Author Nassim Nicholas Taleb calls this ‘antifragile’ as it allows you to not just handle luck and uncertainty, but actually thrive within that environment.
Reduced stress, less worry, and decreased anxiety are all natural byproducts of having flexibility in your financial life. Knowing that you have the ability to ride the waves of life is ‘priceless.’ Start there. Ready for a real conversation?
Related: Investors: Are You Searching for That One Sure Thing?