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Ensure your financial plan passes the sleep test

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(Read caption) A man sleep on a sofa at a resting area inside the University Students Venture Park, in Shanghai, China, July 29, 2015. Make sure your investments aren't keeping you up at night.

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With the exception of my wife, my grandmother is the most inspiring person I’ve ever known. I don’t know where I would be today without her. Although we didn’t always see eye to eye, especially on financial matters, I learned an extremely valuable investing lesson from her.

Members of the Greatest Generation, my grandparents came of age during the Depression, a period marked by severe distrust of financial institutions and an extreme aversion to risk. After my grandfather died, my grandmother had to manage her finances for the rest of her life, 28 more years. The way she handled her money reflected her upbringing, her deep dislike of risk and her commitment to her goals.

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In addition to having money in accounts at several banks (to ensure that she was covered under the $100,000 FDIC limit per institution), she had a brokerage account, which was invested in CD ladders. CD ladders are CDs structured to mature at different times to ensure stable reinvestment rates. She chose this option because she did not want to shop around for the best CD rates.

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Toward the end of her life, she did allow a small amount of money to be invested in conservative mutual funds. When she died, her estate was worth about $700,000.

Why this was the right strategy

Is this the right approach? Many advisors would be quick to point out what my grandmother could have done better or how she could have made more money. They would tell you that she would have had over $1 million (or $2 million or more) had she invested with them.

But for my grandmother, it was absolutely the right investing strategy. Why? Because she didn’t lose a night of sleep worrying about her money, and she died with zero debt. To my grandmother, a 100% chance of leaving a considerable estate was infinitely better than taking on risk that could hurt those odds. She did not care for beating the market and she didn’t worry about interest-rate risk, inflation or anything else, for that matter. She cared about conservation of capital.

Now, I don’t completely agree with my grandmother’s investing strategy, but I do believe that any investment strategy needs to support its owner’s goals. A financial advisor may help you conceptualize, develop and even implement plans, but you are the only person who will know whether your financial plan bolsters your aims.

How to make sure your plan is right for you

So, how do you determine if your plan is reinforcing your life goals? I call it the sleep test. Simply put: If you’re losing sleep due to your finances, your current plan has not passed the sleep test.

Failing the sleep test is a call to action. If you have a financial planner, it’s time to set up an appointment to discuss your concerns. If, after you’ve talked about your worries, you still don’t feel comfortable with the advice you’re getting, you should think seriously about finding a new advisor, preferably based upon a recommendation from a friend or family member.

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If you don’t have an advisor, or cannot find a good recommendation, a good place to start is the National Association of Personal Financial Advisors. Members pledge a fiduciary oath to place their clients’ financial interests before their own.

A financial planner can’t tell you whether your plan is supporting your goals — only you can do that — but your planner can help determine whether your plan is on track.

This article first appeared at NerdWallet.


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