Whether you use a financial planner, advisor or do it yourself; planning your financial future involves a plan, strategy and tactics to get you where you need to go. So let’s take a moment to think about the difference between these strategies and tactics to maybe reflect on what you have or have not done with your personal finances. To me a “plan” is the most macro or broad big idea regarding (in this example), your financial picture. But then we must create a strategy for your plan. The strategy represents a subjective time frame, for example 5 years. The strategy identifies the objectives you want to accomplish and attaches a loose time-frame to achieve your goal.
My strategy may read like this:
Accumulate and grow my assets reducing the risk to the overall portfolio as I approach retirement at age 70. Using good Social Security planning, some “A” rated fixed indexed annuities for a small portion of income, and a good fixed income bond ladder, I want to create sustainable income that is not subject to market risks. Then, I want to grow the remaining assets with equities or stocks, acquiring some mitigated market risks to keep me ahead of inflation and grow my legacy. I also want to fund long term care insurance (asset based), and life insurance.
Now that I have outlined a basic strategy, I need to make “tactical” moves to get my strategy in motion. While I am still in the “accumulation” phase, a tactical move may be; with a portion of my assets I will sell cash covered “puts” to create income or accumulate stock in companies I want to own. Once I own this stock, I may sell covered “calls” for income. This is a buy/write tactic that aids in the overall “accumulation” strategy.
The point is that your plan and strategy should be well defined. Not that changes should not be made, but a general idea of what you want to accomplish and how. The tactics that you or your advisor employ are more defined or maybe represent shorter periods of time. Tactics are just tools to help you reach your strategic goals which are a just a part of the overall plan.
Reading this may seem simplistic to you, but I know sometimes very basic concepts can be a valuable tool for solving problems that may have seemed very complex. Buying mutual funds until you retire and taking the money out of them when you need it would be a strategy and plan. But that plan does not include enough detail to ensure that you won’t run out of money in retirement.
A very good exercise would be to write out your plan and objectives, then create a strategy to work towards your goals. If you are comfortable with the details or tactics to fulfill your plan, then write those down as well. If you are not comfortable with any or all of this then, call a planner, or you can call my office.
