Honesty, it has been said, is the best policy. By my lights, truer words have never been spoken. Honesty sometimes involves a small amount of pain/ anxiety in the short term and an almost complete absence of it in the future.
The maxim “Always tell the truth, or at least don’t lie” is a good one to live by. I think most people are honest most of the time. Except maybe for fisherman. That bunch cannot be trusted a far as we can throw them. But only regarding the size of fish they claim to have caught. (Looking at you Grandpa Mark!)
Anyway, I believe that there is only one person we lie to often, at least regarding financial matters. Can you guess who? It is our ourselves. We spin yarn after yarn, and we buy it all the time.
One such common lie we tell ourselves is that our rate of return will be the most crucial factor in determining our investment success. For the 457,684th time, a person’s rate of savings is likely to be far more important than their rate of return in achieving financial security and wealth.
The reason we want to believe that return rate will trump our rate of savings is simple. The greater our return, the less we need to save today to meet our goals. Therefore, the more there is leftover to spend.
Stock market returns over long decades have indeed been consistent. But viewed over shorter periods, they are often volatile. The time at which we begin investing and when we stop, and what the market is doing during those times, can have a meaningful effect on folk’s long-term rate of return.
There are an almost limitless number of other factors that can skew our results over time. Illness, injury, economic cycles, lawsuits, accidents, acts of nature, our own decisions, and on and on. Earning an 8% total annual return or better in your 401K is not remotely guaranteed, and many have fallen well short of that over the years.
So that I am crystal clear on this point, what we in financial services do for clients is nowhere near as important as what clients do for themselves. Do not mistake me, good coaches are a real thing and have value. No question about it.
I consider myself an excellent financial advisor. But let us be candid, neither Phil Jackson nor Bella Karolyi was more valuable than Michael Jordan or Kerri Strug.
Great coaches motivate and come up with sound game plans, but it is up to the players to execute on the field. Executing, in financial terms, simply means saving. And that is the truth.
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Over my time in this industry, there have been two massive market crashes (2000 and 2008) and several not insignificant corrections. We are in one now. Having assisted my clients in both preparing for and navigating through the rough seas of economic downturns, I have noted a common error in thinking- another little white lie we might tell ourselves.
The formulation goes something like this:
“I’ll invest again when the economy begins to look better.” Or “When I see signs that we are recovering, then I’ll be ready to invest.” Though these are the words people sometimes use, I have come to realize that they are not what they mean.
What they mean, but are reluctant to admit, is “I will invest again when I feel less afraid.” I understand this and it is not unreasonable. It is also not ideal.
The stock market and asset prices more generally can be leading and not lagging indicators of economic health. In other words, the markets can recover before you feel less afraid.
Warren Buffet once put it thus: “If you wait for the robins, Spring will be over.” Of course, it is good to feel less anxious, but it is not good to miss opportunities.
Ironically, some of the folks who did not want to invest before the rebound begins will shift their thinking. They will continue to not invest in the hope that asset prices will return to the levels they did not like a month or two before! It is an unfortunate and difficult cycle to break. The best way to break it is to not need to.
We cannot know the future. Therefore, when it comes to investing, we are better served to plan the work and work the plan. The more we remove our feelings from the process and commit to a program, the better our results will likely be over time. This is one of the principal reasons millions of people across the world work with financial planners and why the good ones have earned their stripes.
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It is never the right time to take action. If, that is, you are defining “right time” as “nothing else of importance going on in my life at this moment.”
There is always going to be something. In fact, there are likely going to be many things in our lives that require our time and attention.
If you polled Americans and asked them “What is the number one attribute that makes a great financial planner/ advisor?” I suspect a common answer would be “She makes me lots of money” or perhaps, “He is a good person and I trust him.” Certainly, we can all agree those are fine things. Especially the “good person” one, since being honest and ethical is entirely under our control.
However, neither of those would be my number one answer. My answer is: A great financial advisor is one who is effective at helping people take action in their own interest. English polymath Samuel Johnson said, “People need to be instructed less often than reminded.”
The overwhelming majority of the folks I talk to and work with know full well there are financial things they want and need to be doing for themselves, their families, and their businesses. Things like saving for retirement, children’s educations, home purchase, wealth transfer, business continuity planning, etc.
In my experience however, a number of those same people put off taking action. They often tell themselves that there are too many other pressing matters to focus on.
But is that truly what is going on in all cases? I do not think so. Here, we have another fib we tell ourselves that makes us feel better in the short term but could put all we care about in danger later on.
I have noticed that when it comes to stuff I know I need to do outside of financial matters, I sometimes procrastinate by telling myself I am just too busy. Is the reason I have not gone for a prostate exam or blood work in a couple of years because I cannot find the time? Being honest, no.
It is because both the process and what it could reveal make me uncomfortable. I will be 50 this year and should also have a colonoscopy. I will, but I am not looking forward to it and in no hurry to book it.
This, despite that I have an older brother who had prostate cancer. Moreover, I know early detection is crucial and potentially lifesaving. Many people feel the same level of discomfort when talking about money. I feel great empathy because I see myself in them.
Empathy alone, however, will not save our lives. Making and keeping a doctor’s appointment just might.
If you do not care about the health of your finances, carry on. There are people who live by default rather than design and I wish them luck. Truly. I hope circumstances go well enough that they never realize how dangerous the path they have chosen is. And be in no doubt, doing nothing is a choice.
But if you are intelligent, educated (formally or otherwise,) family oriented, and understand the benefits of proper planning, consider making and keeping an appointment with a competent financial professional. Like the doctor’s appointment I scheduled just before writing this, you will feel better about it immediately. And who knows, it might just save your financial life.
Scott R. McGimpsey February 28th, 2023
This material was prepared by Scott McGimpsey and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Neither Cetera Advisor Networks LLC nor Scott McGimpsey is engaged in rendering legal, accounting, or other professionally services. If such assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any federal, state, or municipal tax penalty. Moreover, a diversified portfolio does not assure a profit or assure protection against loss in a declining market. UNIFIED PLANNING GROUP is an independent firm.