Planning Amidst Uncertainty

Investing and planning come with a continual set of challenges. In my experience, these challenges center on matching up the circumstances and resources at hand with the unknowns that tomorrow brings. Doing so in the present environment is particularly challenging given the uncertainty from the coronavirus on one end, the pending changes coming out of Washington on the other end, and the continual ebbs and flows of market activity in between.

Our goal as advisors is to help clients balance the knowns and unknowns of planning and investing so that we can help them make the very best choices with the information available, knowing that we’ll never have the full suite of data to make the "perfect" decision.

With that, there are four principles to keep in mind during the decision-making process:

1. Keep your Options Open
2. Read the Fine Print
3. Make Decisions out of Clarity, Not Certainty
4. Let Enough be Enough

Keep your Options Open

Think about choices that give you the maximum flexibility. For example, let’s say you would like to simply consider how to reduce your taxes. If you are a private business owner with flexibility on when to incur income or expenses and you separately own diversified portfolio investments in both taxable and tax-exempt investment accounts, then you have a host of distinct ways to attack the same goal as you await for legislative decisions to be made. To save taxes, you could gift appreciated stock, make a Qualified Charitable Contribution (QCD) from an IRA, accelerate business expenses, or postpone income.  Having a variety of choices is always preferable to not having them!

Read the Fine Print

Let’s say for a second you would like to remove some assets from your estate. You could work with an attorney to set up a Qualified Personal Residence Trust (QPRT) to utilize your home to do so or Intentionally Defective Grantor Trust (IDGT) that could use other assets to accomplish that goal. But wait a second, how do you feel about potentially having to pay rent to your children, or having to ask a duly authorized Trustee to approve a transaction for you? Is that a headache, ignominy, or no big deal? Ask yourself, “Is the juice worth the squeeze?” Simplicity is a wealth in and of itself, and more often than not, it is best to let go of an additional 1% in returns or tax savings if it requires an 10x increase in complexity.

Make Decisions Out of Clarity, Not Certainty

Patrick Lencioni, in his book, The Five Temptations of a CEO, deftly illustrates that we will never have 100% knowledge or certainty about the decisions we are weighing, though we can have clarity about why we are making these decisions. This clarity will help guide us in the future. From a planning perspective, if we know that we own appreciated investments that have increased in value, we can have clarity that it is prudent to bank profits as a matter of course, and we don’t need certainty as to the precise capital gains rate on dollars of that magnitude. Alternatively, one will never know if it is the absolute right time to sell a stock or a fund or whether it is at or beneath, its all-time high, but you can know whether the net proceeds is enough to put the deposit down on your dream home, pay off a debt, save enough for a child’s education and so on. Let the big things be your guide, not the madness of uncertainty.

Let Enough be Enough

Some time ago, a study was released that the average salary coming out of a top 25 M.B.A. school in the U.S. put that individual in the top 1% of wage earners worldwide. This statistic helps us understand that a “millionaire’s” tax or surcharge decision would be made in rarified air. While not belittling or diminishing the value of saving nickels and dimes where you are able and having a process to utilize for investments and taxes, it is important to keep the big picture in context. There is no end to the amount of investment or planning decisions an individual could theoretically make, so don’t drive yourself mad trying to figure out how to save every penny. Visit relatives, enjoy the autumn sun, and be mindful and thankful to be in a position to make decisions about such matters.

“You waste years by not being able to waste hours.”

Psychologist Amos Tversky

If you call any investment advisor, accountant or lawyer and say “what can I do?” the choices and decisions could go on forever. If you take time to be clear about your own personal goals, then you can be clear about what you want to do before you ask your advisors what you can or should do. It will also help you take bumps in the road in stride. Former United States Secretary of State George Shultz famously locked himself in his office for an hour every week with only a pen and legal pad to give himself time to think strategically. Like Shultz, I encourage you to carve out an hour each week, sit down with a blank legal pad, and let thoughts come to you. The question you should ask yourself is: “What should I do, and why?” Spend the hard time answering these questions and let the details take care of themselves.