Never assume...
I am not sure where the saying “assumption is the mother of all cock ups” came from but it is apt and sadly arises all too frequently in daily life. Over the years I have held meetings with clients where I have assumed they possess a greater degree of understanding of how financial planning works than is the case.
Frequently many assume financial planning is based on a series of financial transactions, one being built on another and that somehow this process will take on a meaningful shape and form a plan for the future. This is just not the case.
Financial Planning has got nothing to do with financial transactions it never did have and never will have. Whilst I have known this many years it is only in more recent times that I grasped others do not. Ironically it took advising a former banker for the penny to drop.
Perhaps it is people’s previous experience which fosters the belief that financial planning is based on a series of transactions, whilst any good financial plan will undoubtedly at times require financial transactions, frequently a series, these are merely tools in an otherwise more complex arrangement. Sometimes transactions will give rise to something specific such as a pension plan, so maybe it is the word “plan” that confuses the situation. A favourite quote of mine is by former US President Dwight D Eisenhower;
“In preparing for battle I have always found that plans are useless, but planning is essential”
It is easy to take Eisenhower’s quote and assume he was dismissing planning after all he seems to be implying that on occasion a plan is not worthwhile, however what he is actually saying is planning is critical to making sure that the transactions that we inevitably make can come together to ensure your goal is met.
Therefore in financial planning it is critical to gain full and complete understanding of what you are seeking to achieve. This is the not as simple as it sounds nor is it necessarily as bland as saying “I want a stable retirement income”. After all what is a stable retirement income? The answer will be different for each of us.
Getting to what really matters to us in order to set objectives is time consuming and takes care; this is not something you can do with a tick box exercise. Success only comes when you have been faced both with challenging questions and the time to consider and answer those questions. Just like a battle plan however things change especially things outside your control, so your planning needs to allow for changes of course and revision accordingly. Financial planning is in fact a constant process, not a transaction or series of transactions, much like Eisenhower’s battle.
No matter how much our world changes and technology delivers new exciting opportunities it remains true that financial objectives are best met by relying on old fashioned simple principles and investment strategies rather than fashionable ideas. All too often using newfangled arrangements or transactions to meet an objective simply creates another newer and often bigger problem further down the road. It is a little bit like trying to cure a stress related headache by consuming half a bottle of whisky, the stress headache may well go but you will end up with a far worse headache which takes longer to cure.