The Gervais Group

If you have built personal wealth and financial complexity, today I want to share with you the concept of stress testing, and how it can solidify your financial plans and make you feel secure about the future.

Stress testing is familiar to anyone with an engineering background; when new products are developed or old products are revised, engineers put the new product through an intentionally intense test to see how stable the new product is, and whether it’s strong enough to withstand difficult, stressful situations.

We recommend that you put your financial plan through a stress test on a periodic basis, to make sure it’s living up to your needs, not just now but into the future. Here’s how you can perform a periodic check - and improve your finances in the process.

First, take stock of how your needs are changing. Your needs and goals will evolve constantly throughout your life, which means you’ll want to periodically check your financial plan to make sure that you’re still on track.

There are four primary areas to pay attention to during your stress test: Investments, insurance, debt and taxes. These are complex areas so your team of professionals should be helping you evaluate your current scenario and identify any gaps or issues, but also to make sure that you are building the best financial life possible for yourself and your family.

Think about the phases that you go through in your own life. Some of the decisions are obvious and planned, like retirement, mariage or having a child. Others are less predictable, like the timing of an inheritance or an illness.

But any of these major life events can render parts of your current financial plan obsolete. In that case, you’ll need to be ready to adjust your plan to solve the problem.

Here are some of the key ways a stress test can help you:

• First, there’s Tax Efficiency. Are distributions,  investment holdings, and  estate plans optimized for your specific situation and current circumstances?
• Second, there’s Wealth transfer. If something were to happen to you, will assets go where you want them to? Have your wishes changed since the plan was established?
• Then there’s the charitable impact you want to make. Based on current laws and  personal desires, are you using the best strategies for charitable giving?
  
  

Stress tests allow you to look at any of the what-ifs for each of these situations and consider the range of possible outcomes for each scenario. From there, you can decide if you are comfortable with the range of outcomes or if adjustments need to be made. 

If you are growing uncomfortable with the complexities of your financial situation, please reach out to our team to discuss the process of stress testing.