It’s 11 o’clock on a Monday morning and I’m reviewing one of my client’s financial plans. I’ve been working with her for many years now, helping her progress towards an end goal, which is to retire at the age of 70.
From start to finish, everything has been planned so that she can say goodbye to working life in 2036. As I calculate our next move, I receive a phone call from her: “There’s been a change of plan… what would it look like if I retired next year?”
At 55, that’s some deviation from the plan. “No problem. Give me a week and I’ll come back with a new strategy,” I say. Had it not been for the pandemic, my client would still be on the same path heading towards her initial goal. But that’s not how life works. Every day we are susceptible to change and coronavirus has been a stark reminder of just how unpredictable life can be.
Seeing is believing
If I’d looked into a crystal ball in 2019 to see what was coming our way, I wouldn't have believed it. A social life which relies on the strength of our wi-fi and a future that depends on a vaccine. Unbelievable.
Yet here we are adapting to ‘the new normal.’ It seems equally bizarre now to believe that we’ll one day be dining in a restaurant or be in a group larger than four where we won’t have to worry about social distancing.
Yes, we’ll eventually come out of this, but life will throw another curve ball at us, forcing us to adapt to the new environment we’re living in. Will we be able to anticipate what’s coming?
Almost certainly not.
The reality is that we can’t predict the future
Nor can we control what happens around us… but we can control how we react to it. The key is to plan ahead and accept there’s a good chance that things will go wrong because life is so unpredictable. Change is inevitable and so our mindset must be flexible and responsive to life’s movements.
This is something that I reiterate to my clients. I can’t predict the next economic crash nor can I predict whether Aston Villa will beat Brighton this weekend (although they should). But what I can do is create financial strategies that are resilient and highly responsive to change.
This is the opposite to what the investment world - and fund managers in particular - pretend finance is all about. The latest predictions for 2021’s Top Funds is as laughable as 2020s. No one can know what’s going to perform well and what isn’t. The best we can do is have a robust plan.
Don’t predict. Plan instead.
Throughout the pandemic, I’ve had many interesting conversations with my clients about what the economic future holds. One asked me when inflation will return, why it hasn't been an issue for a decade and how it will affect the long term plan. My response was it won’t be inflation that we’re concerned about in six months, it will be X.
And what is X? I don’t know. It can be anything that will affect the plan, because there will always be another concern that will get us talking about the market. Despite our uncertainty we still need to plan the route ahead.
This is important because a plan gives you something to work with
Planning is preparation. It tells us what floor to go to in a hypothetical situation. But only when we arrive at the right floor will we have enough information to know which door to open and find what we’re looking for.
Plans have to be both flexible and agile. They have to accept the total randomness of life and that the patterns we follow will at some point be broken, leaving us confused and vulnerable to emotional decision-making.
Having one in place mitigates risk and provides you with a safety net when something completely destructive and unpredictable occurs. When the pandemic happened, I simply pivoted in a different direction based on the new information provided to me.
Failing to have a plan leaves you susceptible to panic, shock and impulsive decision-making where rational thinking quickly dissipates.
This is related to cognitive bias
A term used to describe how people’s perception of the world has been passed through a filter of personal experiences and preferences. These preconceptions are mental shortcuts for your brain to expedite information and make sense of what you’re seeing in front of you.
So for example, if you’ve made a number of profitable investments, your recent successes may make you overestimate your understanding of the financial markets, giving you the illusion of control.
You may have been savvy with your money but there's also a good chance that you’ve been lucky, or perhaps a bit of both. This false sense of confidence may misguide you into thinking that you can consistently beat the market. So when something as unpredictable and catastrophic as the pandemic occurs, your belief system will be shattered, leaving you shocked and in a state of panic.
This is when you want to have a financial planner to keep you on track by viewing each scenario rationally.
No matter how distressed and concerned you are, your financial planner will steer your wealth in a new direction that’s based on an objective perspective. Regardless of how severe the storm is, you’ll be able to sleep at night without worry… all because a four-letter word: plan.