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Planning For Life

December 2010

In This Letter:
Financial Plan or Planning?
Money and Politics
What We're Doing
Other News
Parting Thoughts

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Welcome to the first issue of Life Planning Partners, Inc. newsletter. Every three months, we'll provide a short blurb of what is happening at Life Planning Partners, and Tim and I will write a timely article on what is happening in the investment and financial planning world.

December is the busiest month for financial planners, as we are making all those great year end tax moves to help you save money. This year is especially challenging because we've been anxiously awaiting Congress to extend the Bush tax cuts (or not.) Most likely these will be extended, and if not, we'll be urging most of our clients to make some important tax moves.

All of our clients will be receiving a packet shortly with our every other year contract, and a letter explaining our service and some changes in how we are going to improve our service. The big change is in how we do our quarterly financial planning. We have always looked at each part of your financial plan throughout the year - the first quarter is insurance, second is investment planning, third is estate planning, and fourth quarter is goal projection and tax planning. However, we have typically waited for meetings to review these with you. Going forward, we will automatically send you the quarterly update instead of waiting for meetings. This way you get a steady diet of knowing your financial affairs are in order. Of course, we can discuss and look at any part of your plan at any time and plan to have regular meetings with you.

Thanks for being our client, and we look forward to a great 2011 with you. 


Carolyn McClanahan, M.D., CFP


What's Better?

A financial plan or financial planning?

by Carolyn McClanahan, M.D., CFP

Life is messy, goals change, the world changes and so we need to be ready to change with it.  In a recent interview with a potential client, I was given their financial plan from 2003.  Things were rosy in 2003 but after that, nothing went according to plan!  Is a one time book called a financial plan really useful?  So while a financial plan is useful to set a course, the real need is for continually updated financial planning.


This brings me to the point of a financial plan versus financial planning.  Do any of us really know what is going to happen in the next 20 years?  Heck, for that matter, this new client's financial plan was no longer relevant within months of the plan being completed.  With traditional financial plans, there is so much emphasis on being "right" and this creates a false sense of precision that people actually believe there is control over the outcome. 


The best analogy I've read compares a financial plan to an airplane's flight plan. A flight plan is filed after the pilot assesses information and makes estimates about wind, weather conditions, arrival time, and other considerations unique to the flight path. But no matter how long a pilot spends making assumptions, she will usually need to make course corrections once in flight to insure a safe arrival at the destination.  Accordingly, once your initial financial plan is set, the course it takes needs periodic corrections to keep up with the changes in your life or the financial environment.  A sound plan is good start, but it is really about the course corrections, after the plan.


My job is to help clients enjoy their lives now and to plan for the future.  Since we do not know what is going to happen in the world, we create plans and anticipate the plan will change.  Once we have a general idea of the destination, the focus should shift to what we can do over the short term.  Staying nimble, resilient, and enjoying "now" is the best thing we can do to create a great future life.  Continued planning truly is the best way to get there.


Money and Politics

by Tim Utecht, CFA

The recent mid-term elections brought about plenty of discussion regarding the impact on investments.  Much of the generally accepted "wisdom," however, simply isn't supported by facts. 
For example, Republicans are often viewed as more "pro-business" than Democrats, and Wall Street folklore says that the market prefers Republicans.  Yet, the numbers don't support this belief.

A recent study covering more than 120 years of data concluded that stock returns were almost identical under Democratic and Republican presidents.  Post-World War II, stocks performed slightly better under Democratic administrations, including the recent 40% return since President Obama took office.  No matter your political leanings, there is scant evidence that your portfolio will fare better if your party of choice occupies the Oval Office.

Another widely held belief is that political "gridlock" is good for the market.  The logic is that with divided government it's unlikely that major legislation will be passed that will hurt business (and therefore stocks).

Once again, the data does not support the theory.  According to research from Standard & Poor's going back to 1900, when the House and Senate were controlled by different parties (gridlock), stocks generated returns below their long-term averages.  This has not occurred often, but gridlock does not appear to benefit stocks.

While these two dictums are without empirical proof, it is often wise to be skeptical even when the data seems to support such ideas.  One of the dangers of inferring too much from past data is the potential for spurious correlation - a fancy way of saying that an apparent link might simply be a coincidence.  One example is the well-known "Super Bowl Stock Market Predictor," where the winner seems to "forecast" the direction of the stock market with 79% accuracy.  Another is the tongue-in-cheek research that showed butter production in Bangladesh explaining much of the variation in the S&P 500 stock index.  Few would argue these associations are anything more than simple chance.

Clearly the factors that impact the economy and stocks are numerous, and it's impossible to ascribe market performance to one single data point.  Global events and Federal Reserve actions are two of the many elements that may have a greater impact than domestic politics.

The next time you hear an old investment adage repeated as truth, keep in mind that conventional wisdom is generally not a solid foundation for a successful investment policy.  The best strategy is good risk management, keeping costs low, broad diversification and playing great music over the "noise" of all the "wisdom" you hear.
Upcoming Calendar
for Life Planning Partners, Inc.
(what we're doing for you)

December - year end tax planning is completed
End of January - tax reports for accountants completed
End of February - insurance reports completed

Other News:

Medical Economics Magazine named Life Planning Partners, Inc. a top planner for doctors in Florida. This is a great honor - we made it on the list the first time we were eligible to do so.

We hope you enjoyed our first newsletter.  We look forward to feedback and suggestions for the future.  Have a great holiday season and an incredible 2011.


Carolyn and Tim
Life Planning Partners