The Most Important Thing

Legendary investor Howard Marks summed up 40 years of a successful investing career with a book titled The Most Important Thing. Aspiring investors flocked to learn what was the most important thing when it came to investing money. The genius of it was that each chapter outlined a different most important thing.  For example:

Chapter 3: The Most Important Thing is Value

Chapter 5: The Most Important Thing is Understanding Risk

Chapter 14: The Most Important Thing is Knowing What You Don’t Know

The point is that there is not just one most important thing. There are many aspects that all need to be considered in order to be successful at investing. The same can be said about personal financial management. I have been asked multiple times, “what is the most important thing for me to be doing for my financial plan?” The answer follows the same format that Howard takes in his book.

The Most Important Thing is Defining Your Goals

If you are going to have a financial plan, you have to know what you are planning for. A lot of people, when posed this question, say “Uh, retirement, I guess.” Well, what does retirement look like?  How much monthly income will you need? Spend some time trying to figure that out.

Defining your goals gives your plan a target. How can you plan if you do not have an endpoint? It would be like putting together a roadmap for vacation when you don’t know where you’re going.

Also, clearly defining your goals will turn the abstract concept of retirement into a real destination in your mind. This will help you adhere to your financial plan in the face of any hiccups because you have given yourself something real to look forward to.

The Most Important Thing is Discipline

One of the biggest risks to financial plans is reactionary trading decisions. When the market starts going down, people see their account values decline and worry that they will continue to lose more. In a desperate feeling of self-preservation, they sell out of the market – at exactly the wrong time.

Then they have to try to figure out when to buy back in, potentially missing out on a large rebound. By the time they do buy back in, the market drops again.  The investor took all the loss, missed all the rebounding gain, and now is looking at more losses. This ‘whipsaw effect’ will decimate a financial plan.

It is imperative that investors have discipline through volatile markets. Generalized “stay the course” advice is not helpful. Make sure your financial plan can absorb the inevitable market corrections and have a plan for when they come. If reducing risk makes you feel better then turn the dial back a little. If you are a long way from retirement, you should use a correction as an opportunity to increase contributions at a lower price. Either way, know ahead of time what you need to do, and stick to your plan.

The Most Important Thing is Flexibility

Plans change, people change, and life changes. You have to build flexibility into your planning process in order to stay on track. A good habit is to evaluate your plan once a year.  Are you still on track? What has changed?

A few strategies to build flexibility into your plan include:

  • Contingency planning – What happens if your dream retirement home goes up in price from $400,000 to $800,000? What would happen if you had unexpected healthcare costs? How would you adjust?
  • Stress Testing – Would your financial goals still be attainable if the market dropped 50% next week?
  • Goal Ranking – If a need came up that stressed your financial plan, which goals would you lose first. Which are the ‘nice-to-haves’ and which are the ‘must-haves’?

The Most Important Things Aren’t Things at All

Money gives you options and a financial plan is simply a tool to optimize your options for the future. But having the money available to buy a dream home and travel every year does not do you any good if you are not healthy enough to enjoy it or if you don’t have people you love to share it with.

An ideal financial plan allows for investments in your health and wellness. You want to be set up to enjoy the future without sacrificing the joys of today.

As with most things in life, the Most Important Thing is balance.

Keith J. Akre, CFA, CFP® – Vice President & Trust Officer

Opinions expressed are solely my own and do not express the views or opinions of Stillman Bank. Investments available through Stillman Trust & Wealth Management (1) are not FDIC insured (2) are not deposits, obligations, or guaranteed by the bank and (3) are subject to investment risk including possible loss of principal.

Note: This blog post originally ran as a guest columnist article in the October 2021 issue of The Voice, a Rockford Chamber of Commerce publication. To read the issue in its entirety, click the link below. 

The Voice | October 2021 Issue