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Your heart should react. Your financial plan should not.

Horrifying pictures of dead children on hospital stretchers, covered with blood-soaked sheets. Disturbing photos of burnt-out residential apartment blocks, preschools, and city parks. There are inspiring and heart-rending stories of people rescuing the children of strangers, people carrying their pets to hoped-for safety underground, and average citizens in neighboring countries opening their homes to refugees. These are unfortunately the current events of Ukraine. There are also ordinary people in farther-away countries donating to the International Red Cross, overpaying for products sold by Ukrainian Etsy sellers, or booking stays in Ukrainian AirB&B units that they intend to pay for without using in order to get cash to Ukrainian citizens. After roughly more than two years of pandemic lockdowns, variant surges, and other sur-reality, the tragedy and bravery unfolding in Ukraine can make us feel like we are living in season 5 of “The Handmaid’s Tale”, which is a TV series about a dystopian world. And even if we hesitate to voice it, for fear of feeling and appearing self-centered, it can also make us ask: “In light of this new disaster, should I drastically change my investment strategy and/or my financial plan?” It’s a legitimate question, to which the answer is almost always, “No.” Here are some reasons why.

Your financial plan should allow you to project a range of outcomes, under which success is possible. If your financial plan relies on every last variable to be within 5% or even 10% of the numbers you input into the software, it is probably doomed to failure. If the last few years have taught us anything, it is that SH!T happens, and sometimes happens frequently. It does not take a crystal ball to accurately predict that one or more disasters of epic proportions are going to happen within the next 30, 40, 50, or 60 years your financial plan covers. There are four basic ways to make sure that your plan is robust enough to succeed, even when the outside world is hit with historic and widespread difficulties. You can stress-test what will happen if your income is significantly lower than you expect. For example, you can add-build in a period of under- or unemployment, or you can try out bonus-less years. You can stress-test what will happen if your expenses are significantly higher than you expect by adding a yearly emergency expense and watching the affect, if you dial up inflation in big-ticket items like a residential upsizing, kid’s college, or your own assisted living or nursing care.

About 95% of my clients are people with disabilities and their families. There is a severe lack of disability-service capacity; and there are corresponding thousands-long waiting lists not only in my home state of Illinois, but also in some of the other states in which my clients are located. As a result, when it comes to forecasting how much government social programs will cover their own or their family member’s medical or direct-support services, the clients come with a scarcity mentality, despite being generally optimistic people on other fronts. We routinely assume that the person with a disability will wait years to get publicly-funded services, even while we examine and pursue every legitimate strategy to obtain and maintain that public funding. We routinely assume that the person her/himself and/or the family will need to set aside a certain amount of money to pay out-of-pocket for services for which the person is technically eligible.

Your investment return projections should err on the conservative side. In the first stage of my financial career, I worked in the overseas office of a mid-sized British investment bank. It was the industry standard to expect a minimum 10% annual return from the stock market. This was particularly true of the brokers, who actually sold the stock since they had a vested interest in making new securities attractive to potential customers. As an equity analyst, I began to question that assumption. When I later began to work as a personal financial planner for a large American broker-dealer, we had dialed it back a bit towards 8%. Now, clients and I routinely explore what will happen if the market returns on 4% for a period of time. I still advise clients that, beyond what they will need immediately in the next 3-5 years, the rest of their money is best off in the stock market with broad diversification among company size, industry, and geography. But Great Inflation ‘70‘s, 9/11, COVID and now the invasion of Ukraine and other global armed conflicts are going to hit the market, sometimes hard.

You financial plan should include a robust insurance analysis. This may seem obvious, but some clients’ experience with an over-zealous insurance salesperson and/or their own investment optimism leads them to focus on the self-insuring route. Wars, pandemics, and global economic downturns aside, personal unexpected events and tragedies can cause an otherwise well-constructed plan to collapse in a short time. If a family wage-earner incurs a permanent and total disability, that person’s lifetime-expected earnings are siphoned out of the plan. The disability insurance coverage from her/his employer may be significantly less than 100%, and the payout may be taxable as well. It is even more detrimental if a wage-earner meets an untimely death and does not have nearly enough life insurance to replace the lost future earnings. An under-insured residence destroyed by a hurricane, flood, tornado, earthquake, or fire, or a catastrophic level medical bill incurred by an underinsured family member may be a one-time hit; however, the repercussions can nevertheless extend for years. A family member, whose early-onset dementia requires years of nursing-level care, can cause severe financial strain, leading even to the extreme creation of the “Medicaid divorce”, where spouses divorce solely so that the non-affected spouse can retain assets that would otherwise be spent down to nothing on nursing home care. The impact of all these potential personal disasters on families, where one member has a long-term disability, is even more dramatic. That said, insurance itself is a cost and the likely benefits should be weighed against the required output for premiums to find a suitable balance.

With 20/20 hindsight, may public figures and political pundits claim to have seen coming the terrible situation in Ukraine. To a certain extent, they may be right, as were those infectious disease experts, who knew long before COVID that a global pandemic would have to emerge sometime. But none of us will see coming of even half of the future events that could throw our financial plans for a devastating loop. When they do, we are called, as with Ukraine to react in any way that can possibly, humanly, help. To the extent possible, though, our financial forecasts and plans can be proactive if we deliberately test them under a range of potential, hypothetical future stressors.

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