One of my guilty TV-watching pleasures is a show called “American Pickers”.  It’s a reality show (supposedly) that follows a couple of guys who travel the U.S. by van, stopping in on the homesteads of people who have amassed collections of antiques, collectibles, or just plain junk.  I’m amazed at the amount of stuff people accumulate over their lifetimes.

In the show, the pickers attempt to buy items from the people they visit so they can resell the items to other collectors at a higher price for profit.  Some long-term collectors have become emotionally attached to their stuff and are reluctant to let go.

Often, the pickers are invited to the homes by the spouses or children of deceased collectors because the surviving relatives are overwhelmed with the task of disposing of the collections of their dearly departed.

What was initially a passion for the collector has become a burden for them or their family.  They are junk-rich and cash-poor.

The show reminds me of what I believe to be the difference between investment planning and financial planning.

Investment planning’s focus is the accumulation of assets:

• Save and invest, don’t spend;
• Get in on the hottest trends;
• Borrow to invest if interest rates are low.

Accumulation is an easy concept for the financial industry to sell.  It’s promoted on client statements and discussed relentlessly in the media.

Watching your investment portfolio grow during the accumulation phase is exciting – for you and for your advisor who charges fees as a percentage of assets managed.  The investment industry capitalizes on this excitement by selling the latest and greatest products that are promoted as the main catalysts for this growth.  Meanwhile, multiple studies have shown that appropriate asset mix and time are actually the main components of portfolio appreciation, not products.  But I digress.

Because of this excitement, investors stay in the accumulation phase too long and either make no decisions or are forced to make ill-timed decisions.  Neither of which typically leads to a favourable outcome for the client.

Financial planning is more than investment planning and the accumulation of assets but also the structuring and restructuring of your assets and liabilities to transition you effectively and efficiently through the other phases of your financial life; from accumulation to decumulation and finally to gifting.

Too often there is little to no thought of gradually reducing portfolio risk or future tax liabilities as investors transition between financial life phases.  Experiencing a market correction at an inopportune time in your life can wipe out years of accumulation and severely damage your family’s future dreams.

There is a saying in the tax world: “It’s not what you make, but what you keep that matters.”

This is where I believe the concept of financial planning for transitioning, decumulating, and gifting phases is more valuable to a client’s life than accumulation.  You might think you have $300k, or $600k, or $1M saved to spend in retirement, or gift to your children or a favourite charity.  All those years of tax deferral have built a tax mountain out of a bunch of molehills.  Ignoring the planning of what you want to accomplish in your lives, and when you want to accomplish it, can leave your after-tax portfolio with 50% less goal-funding power.

I know these concepts of decumulation and transitioning between financial life phases are not sexy or easily communicated on quarterly statements.

To sexy it up a little, I was going to reach out to Tom Brady, Kim Kardashian, and Justin Bieber for their celebrity endorsements on the importance of financial planning, but I heard the SEC is advising them to stay out of the financial limelight for a while.

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