What's the point of what we do? We're financial planners, Certified Financial Planner®. We also are experts; we've been recognized as being experts with FERS rules, the CSRS rules, and the TSP rules and all the things that are associated with those programs, and also with the insurance programs. What's the point? What's the point of what we're really trying to do here?
For some firms, it may be that the point is to make sales. For some people, it might be that they were trying to predict future. Some people might say they're just really trying to create a way to say, “hey we've done everything we know to do. We've covered our responsibilities, we've covered our liabilities, we’re just trying to make sure that we cover ourselves.”
So, what's the point of what we're trying to do? I have a client who is with NOAA, the National Weather Service basically, and he was talking about the probability of being right when you're thinking about the future. So, we were talking about planning and what good is the planning if all we're doing is trying to predict the future, since we don't know what the future is going to hold? He said that as a weather person, if he's predicting what the weather is going to be in the next 12 hours, he's typically over 80% correct. But if you stretch that out past one day, then it goes down to about 60%, and you pass it out into the second day, then it goes down to about 40%, and anytime you go past 48 hours, they’re just guessing.
So even someone like a weather person who has all these instruments, things in space, and being able to tell you what's happening with the air currents, and so on and so forth. Even when they try to go out three days, they say they're just guessing. I think that's amazing, really, and who are we to say what's going to happen in the future? So really, what's the point of planning for the future and what's the point of what we're doing with the investments? What is it that we're really trying to do here?
I've got four things for you:
The point of our planning for the future, whether it's retirement planning, investment planning, estate planning, whatever it is, what we're trying to do here is create flexibility. We know that since we can't predict the future that we have to be ready to be able to make adjustments. So the whole point of planning is not to try to make something happen just to try to make something happen, because we don't know if it is going to happen. But what we're trying to do is get ourselves in a point of flexibility: financial flexibility, mental flexibility, emotional flexibility, relational flexibility, because we're going to have to make adjustments in each of one of those areas when we don't reach a goal, or we change our mind about a goal. So planning is not so much about “let's make this future happen” as it is “let's be ready for whatever happens in the future.” That's planning.
#2- Why do we use planning software? Basically, it's about simplicity. It's about making it as simple as possible for you, and we've had software where they can give us this much paper, and so really all that saying is let's look at all the work we did. Then we've had no software, and we just had calculations on a sheet on a yellow page. So, what's the point of using the software? Again, it's all about simplicity. How can we really get all this information into one page, or two pages, maybe 3 pages, so that you see it. You understand it, and you not only have to read it, but you can see it like a map, and you understand it. It's like, “OK, this is where we can go. I see the big picture now.” That's why we use software
"...the whole point of planning is not to try to make something happen just to try to make something happen, because we don't know if it is going to happen."
The 3rd thing we do is risk analysis, your risk analysis. What is it about you that we need to understand in investing and really, all that is is, how do we put you in the position where you can maintain self-discipline where you don't panic. You might be afraid, but you're not going to panic. You might be concerned, but you're not going to make rash decisions. If we can put you in that position, where you can maintain self-discipline as an investor, you're going to be more successful. So that's why we do risk analysis on you.
Then we do investment analysis- the risk of the investment. What's the portfolio going to do? Portfolios have behaviors too. So, we want to understand what the portfolio is capable of doing, how it’s capable of behaving, and how bad can it get, how good can it get, so that we help you set realistic expectations.
So what's the point? The point is that we feel like if we get you in a point of flexibility by making things simple, by getting you in the right situation where you maintain your discipline, and that the portfolio behaves in a range of behavior that we have understood it to do, we think that we put you in a position where you can make your best efforts to make that future happen. But if it doesn't, you're going to be OK anyway. That's what this is all about: is making sure you're OK.