10 Years Passed: How Far We Have Come

As part of an annual ritual, I dusted off my past notes to help prepare for a business planning session with my team at Cahill Financial Advisors. At this point, I don’t need to remind anyone about 2020 being a tumultuous year. We didn’t accomplish everything we had planned in 2020, but we certainly made progress on several key projects, and, most importantly, we did our best to take care of our clients during a historic market and economic shock.

Looking even further back, I was amazed at how far we’ve come over the past decade, which brought to mind a quote I’ve heard referred to as “Gates’ Law”:

I never tire of watching the amazement and deserved sense of satisfaction clients feel when we go through the same exercise of looking at their previous 10 years. Looking back at their financial goals from 10 years ago, and comparing those goals to their many achievements since brings about an incredible sense of accomplishment!

There is something special about a 10-year period in the financial planning context. Investment returns don’t come every year, but 10-year periods allow for recovery from market drops and usually bring significant growth. For instance, the “Rule of 72” tells us that investments growing at a 7% annualized return will double in 10 years. We don’t know what the future holds, but historical reference shows that a 7% annualized return has been achieved by stock-leaning diversified portfolios over most rolling 10-year periods.

Willpower and Planning for Setbacks

So, what was I thinking about 10 years ago? Maintaining goals and resolutions, as well as the strength and weaknesses of the willpower needed to do so.

Here is a letter I sent to my wealth management clients almost exactly 10 years ago, on 2-23-2011:

I was recently working on a business planning update and realized that even though it’s only February, I’ve already fallen off track a bit. 2010 ended in a flurry with good business growth, solid portfolio performance, a completed capstone for my master’s degree, holiday festivities, etc. Now that we’ve settled into 2011 and things have slowed down a bit, I realize that I haven’t finished reviewing two new technology packages we were considering implementing early in the year, there’s a stack of journal articles to read on my desk, the garage is still a mess, and I’m still spending way too much time trying to find matching socks in the morning! I don’t think I’m the only one who’s lost their way on a few goals; I’ve noticed that my previous hunt to find parking at the gym has become much easier. I’m guessing quite a few New Year’s resolutions to “get fit” have fallen off.

I had put an article on keeping resolutions and notes from a conference session on building willpower in my planning file. At the time, I thought they were quite interesting, both for general goal accomplishment and also because the heart of the financial planning process is determining financial goals and then developing a strategy to accomplish them.

The conference speaker, Heidi Hanna, a human performance specialist for the “corporate athlete,” talked about the importance of the physiological aspects of willpower and goal attainment. Using willpower requires extra blood flow in the brain and glucose expenditure. Apparently, the amount of willpower someone has is rather limited, but with exercise it can be increased. While you can develop your willpower, throwing too many new stressors at it will make it very difficult to maintain the focus needed for your new habit or to break out of an old one. She cited several studies showing how fatigue and stress weaken a person’s resolve. Her keys to building willpower: training strategically with stress and recovery periods, as well as creating an environment that supports reaching your goals.

Hanna’s advice seems well thought out, if not necessarily earth shattering. In the December 22, 2010 Wall Street Journal, Sue Shellenbarger wrote an article on “How to Keep a Resolution.” Shellenbarger reiterated much of what Heidi Hanna had said, including how easily the prefrontal cortex of the brain, which is responsible for willpower, is overloaded and exhausted. While her sources offered similar strategies as Heidi Hanna’s for working to strengthen willpower, Shellenbarger goes on to say that “lack of willpower” is cited as the top reason for failing to reach a goal and that to truly change or accomplish difficult and drawn-out goals, it is best to go beyond willpower. Her advice was to plan for setbacks and develop a strategy for dealing with them when they occur to get back on track as quickly as possible.

The credit crisis and ensuing market plunge in 2008 and early 2009 were certainly a setback and, for many people, caused a significant alternation in their financial lives. During the second half of 2009 and through 2010, there has been a substantial recovery in both the stock and bond markets. Various sources tell us the recession is over, although, to the many people who are searching for a job or stuck in the housing collapse, it may not feel like it.

Prudent financial strategies did not guarantee avoidance of market declines during the credit crunch, but having a well-designed financial plan and investment strategy has meant not having to sell at a loss. For people living off their portfolios, it meant having enough in safe and stable investments to cover several years’ worth of living expenses knowing that, at some point, those safety funds would be needed as a bridge over a market trough. Our plans have worked and, as Shellenbarger suggests, we allowed for setbacks. Being a successful long-term investor certainly requires the willpower to avoid being drawn into market manias and to control panic during downturns. It also requires strategies that plan for eventual market setbacks. We continue to position for opportunity and plan to protect your financial goals.

Looking Back and Moving Forward

The psychology of people and money is fascinating, and although this letter is 10-years-old, it seems timeless to me. As you take a look back on your financial path over the past decade, it’s important to acknowledge your accomplishments, learn from your “misses,” and consider how your use of planning, willpower, and resolve helped or hurt. After a glance in the rearview mirror, take a hard look at the 10-year road ahead. How would you like life to unfold? What would you like to see happen, and what do you want to make sure does not happen? There will almost certainly be setbacks along the way, but you’ll also be amazed at what can be accomplished over the next decade!

Feel free to get in touch with me if you’d like to talk over your goals, and how the tools, techniques, and processes of financial planning can help get you there.