Comments on: How I Keep My Financial Plans Dynamic http://www.roadtoindependenceblog.com/2009/12/14/how-i-keep-my-financial-plans-dynamic/ Wed, 28 Jul 2010 15:37:53 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Bill Fowler http://www.roadtoindependenceblog.com/2009/12/14/how-i-keep-my-financial-plans-dynamic/comment-page-1/#comment-8821 Bill Fowler Sat, 19 Dec 2009 16:57:20 +0000 http://roadtoindependenceblog.com/2009/12/14/how-i-keep-my-financial-plans-dynamic/#comment-8821 Mike, If our bias is be "the best outcome for our clients", which I strongly believe to be true, then it seems reasonable to apply heavy weight to strategies that assume a very high inflation rate in future years. This assumption may be a hard sell for many advisors to make, however, if the advisor believes that inflation will be "very high" (whatever that number might be -- I am assuming it will be a devastating number), then placing the client's best interest ahead of fears of losing him by frightening him with the real numbers of high inflation, seems appropriate. I have been successful in convincing my clients of the need for using a defensive strategy and have been doing so since 2006, which has provided support for their trust in the need. I have advised (and arranged) all of my clients who have mortgage debt to refinance (if necessary) in order to convert higher interest rates to lower and to eliminate any interest that floats or balloons, due to my belief that "very high" inflation will allow a pay-off at some point with very cheap dollars. Now, I believe, is an era when we may serve our clients best by protecting them from inflation loss rather than attempting to capture stock market gains when the government socioeconomic policy is so anti-recovery. Bill Mike,
If our bias is be “the best outcome for our clients”, which I strongly believe to be true, then it seems reasonable to apply heavy weight to strategies that assume a very high inflation rate in future years. This assumption may be a hard sell for many advisors to make, however, if the advisor believes that inflation will be “very high” (whatever that number might be — I am assuming it will be a devastating number), then placing the client’s best interest ahead of fears of losing him by frightening him with the real numbers of high inflation, seems appropriate.
I have been successful in convincing my clients of the need for using a defensive strategy and have been doing so since 2006, which has provided support for their trust in the need. I have advised (and arranged) all of my clients who have mortgage debt to refinance (if necessary) in order to convert higher interest rates to lower and to eliminate any interest that floats or balloons, due to my belief that “very high” inflation will allow a pay-off at some point with very cheap dollars.
Now, I believe, is an era when we may serve our clients best by protecting them from inflation loss rather than attempting to capture stock market gains when the government socioeconomic policy is so anti-recovery.
Bill

]]> By: Mike Patton http://www.roadtoindependenceblog.com/2009/12/14/how-i-keep-my-financial-plans-dynamic/comment-page-1/#comment-8691 Mike Patton Wed, 16 Dec 2009 21:21:34 +0000 http://roadtoindependenceblog.com/2009/12/14/how-i-keep-my-financial-plans-dynamic/#comment-8691 William, Setting aside any bias about debt, here's the argument for assuming debt now. 1) Money is cheap (rates are low) 2) If inflation rises after borrowing, the debtor will pay back their monthly payment, but each payment will be worth less (in purchasing power) as inflation increases. Basically, I let the plan make the calculation with each scenario. I did not use any higher inflation assumption so number 2 above is just icing on the cake. I hope this helps. William,
Setting aside any bias about debt, here’s the argument for assuming debt now.
1) Money is cheap (rates are low)
2) If inflation rises after borrowing, the debtor will pay back their monthly payment, but each payment will be worth less (in purchasing power) as inflation increases.
Basically, I let the plan make the calculation with each scenario. I did not use any higher inflation assumption so number 2 above is just icing on the cake.
I hope this helps.

]]> By: William http://www.roadtoindependenceblog.com/2009/12/14/how-i-keep-my-financial-plans-dynamic/comment-page-1/#comment-8684 William Wed, 16 Dec 2009 19:35:40 +0000 http://roadtoindependenceblog.com/2009/12/14/how-i-keep-my-financial-plans-dynamic/#comment-8684 I'm curious, I know this post was more focused on the ongoing need of updating financial plans but I have a question about your mortgage rationale. Would you mind elaborating on why it is, in a scenario like this, you specifically believed it would be better off to finance for 4 years? I'm not questioning your decision, just curious as to what led you to the conclusion. I’m curious, I know this post was more focused on the ongoing need of updating financial plans but I have a question about your mortgage rationale.

Would you mind elaborating on why it is, in a scenario like this, you specifically believed it would be better off to finance for 4 years? I’m not questioning your decision, just curious as to what led you to the conclusion.

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