Maybe you’ve heard the Churchill quote,
“Democracy is the worst form of government, except for all the others.”
Despite all the issues we face in our country, at all levels, I still can’t imagine a better place to call home.
And while I feel like “American Pride” is becoming more and more rare as a nation and among our citizens, I’m proud to be an American.
With this in mind, I hope you and your family have a happy, safe 4th of July holiday this weekend as we celebrate our country’s birthday.
Today, I’d like to talk briefly about financial guessing, which is really what financial planning really boils down to.
My buddy, Carl “Behavior Gap” Richards, does a good job of highlighting this in one of his New York Times columns from March.
While we desire certainty and precision in our lives, anything involving the future is at odds with this desire.
The future is uncertain despite what many Wall Streeters and fortune tellers would have you believe.
Yet we attempt to identify patterns among otherwise random information.
And I believe it’s also a big reason why we want to believe that active investment managers and advisors can see the future and beat the market even when they have very little chance of doing so. And it can be a costly wager they’re making with your hard-earned savings and investments.
All this leads to many Wall Street firms, banks, and their advisors implying a false sense of precision in your financial planning and decision making.
But I agree with Carl. We should call it out for what it really is.
Now don’t get the impression that we’re simply spinning a roulette wheel and hoping we picked the right color or number.
There’s more to it than that.
And as I’ve written before, this is where the benefit of a financial planning (guessing) process really shines.
Financial planning done right starts with a series of educated guesses which are hopefully grounded in your personal values.
For those advisors that impress upon you the benefits of a financial plan just so they can sell you an insurance policy or get your portfolio under their management only to let your “plan” become a distant memory can often do more harm than good.
You see, it’s the process of adjusting and refining your “guesses” over time where the magic happens with financial planning.
And I’m absolutely doing a lot of things to reduce uncertainty in my clients’ financial plans and decisions, but it can’t be eliminated entirely.
Let’s say you put a plan together and head off in one direction only to experience a job promotion, relocation to another state, a market that does worse (or better) than you planned, a child or parent with a critical health need, or one of a zillion other possibilities.
You could have put hours, blood, sweat and tears into developing the perfect plan, but when life happens, you find out that while some of your guesses were pretty accurate others were way, way off.
This presents an opportunity to refresh you plan, bring it up to date, accommodate new information and make a new set of guesses based on what you know now.
This isn’t as reactionary as it may sound. This is just how you and I deal with life. We make the best decisions based on what we know now and adjust and course-correct along the way as needed.
So before you get too committed to your financial plan that shows your monthly cash flow for the next 30 years and takes into account your taxes, your expenses, your goals, the investment markets and more, remember that more information and more detail doesn’t necessarily result in more accuracy or precision.
Despite how much we wish it did.
Ultimately, whether you’re planning for retirement, a beach vacation or a 4th of July family reunion, there is a lot of guessing involved.
Rather than this being a cause for concern or discomfort, I think you should embrace it.
And keep on guessing.
If I can help your financial guessing process, let me know.