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Wrapping up Lessons from the Great RecessionSubmitted by Personal Money Planning on December 11th, 2018
By Gary Silverman, CFP®
We’ve been looking at lessons the individual investor, you, could have learned from the Financial Crisis. The first lesson: You won’t see it coming in a way that allows you to win. The second lesson: Stuff happens even when you just know it won’t.
In other words: You don’t know what’s going to happen.
Ah, Gary, aren’t you a financial planner? Doesn’t planning require you to, well, figure out the future in advance?
Thanks for asking. Yes, I am a financial planner. Heck, I’m even Certified. And yes, part of planning is to model what we think is going to happen in a client’s financial life. But then we do something else: We think we are wrong.
Think about it yourself. Ten years ago, could you have predicted where you are now? When you started your career did you have any idea where it would lead? Have your health, hobbies, family, taxes, social view, and location all stayed the same? No, I didn’t think so.
With any financial plan or really any kind of plan you have three issues you need to deal with. They are all related; these are just different ways to look at them.
Deal With #1: It’s not going to turn out the way you think it will. The future will vary from your predictions no matter how much data you’ve got. These are expected variables. Both my mom and my dad lived longer than statistics predicted. The inflation of Texas teacher pensions woefully underperformed. Stocks that are supposed to average 10% a year across a decade sometimes average 0%. Those are variables.
Deal With #2: Stuff happens. You think you will earn between $40,000 and $60,000 when you get out of school. Then no one offers you a job in your field for the next two years. You train for an Olympics that your country then boycotts. You’re all set for a comfortable retirement and you find out one of your kids desperately needs help that empties your IRA.
Your plans have to account for both of these kinds of problems. You can’t assume average anything. You can’t assume the rules won’t change (physics I’ll give you, taxes I won’t). You can’t assume you can even guess what the future problem might be (ask a travel agent…if you even know what that is).
And then for a lot of you, including me, you’ve just got to …
Deal With #3: You are not in control. God is in control, you are not. I’m not going to turn this into a Bible study, but a few words about this. First, if you don’t believe in God or have a belief system very different from mine, the first two points are still valid. Work your plan with them in mind.
For those that take the Bible as truth, get in it and you will find two truths. The first states that you are supposed to prepare for the future. The second states that you are not to depend on yourself for your future. Both are true.
Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing