Worried About the Long Term? Every Plan Must Change

February 1, 2016

As the market continued to trade in an erratic pattern last week, I spent a lot of time checking the pulses of my clients to see how they were holding up.  During a recent call with a long-term client she shared with me what I believe to be a core fear for many investors – and it has nothing to do with the market.

This client is no novice investor.  She has been actively involved in the management of her assets for over thirty years and given her lineage, she will be managing her assets for another thirty years.  Young in terms of her investment life by current standards, she gave me a unique and valuable perspective.

She and I are similar in age and we both have lived through good and bad markets.  We each bring a different view to our discussions on investing – my view as an advisor and her view as the client whose assets are at risk.  So what lessons has she taught me and what is the risk she fears the most?

I have learned from her the value of committing to stay the course in times of volatility. She weathered the first oil crisis in the eighties, the storm of the Fed raising the Fed funds rate to 22%, the 1987 crash, the dot com bubble, the Russian debt crisis, the demise of Long-Term Capital Management, the Great Recession and housing bubble crash of 2008, and now the crash in oil prices.  So when we discussed the current round of market activity the conversation turned not to the next several months of market activity, but to her concerns over the next thirty years.

Her greatest fear for her capital is not the market, but rather the uncertainty of how future governments will tax those with assets. She has always been a saver and has taken care to live within her means, but she worries about whether her good stewardship will be enough to carry her through the next thirty years. “Carl, I am worried that, as an old person, I won’t have anything to live on, not because of the market, but because of the tax policies on those who have saved”.  That is a real risk.  It’s hard to manage, hard to predict, hard to plan for, but it is a factor that cannot be ignored.

It is really impossible to look ahead over the next three decades and anticipate the tax system that will be in place.  The only practical solution is to plan over shorter periods with a time horizon of no more than five years or so.  In reality, planning never stops and by breaking the longer term into a reevaluation of strategy every five years, we should have more confidence that we can make adjustments to whatever that changing environment turns out to be.  As my client pointed out, one thing for certain is that it will be different from today.

Carl Gambrell