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All You Really Need To Know.

Confusion is a good thing if you're fearful about moving forward. Confusion is one of the most reliable methods of ensuring you stay right where you are, without any requirement for change. 

When we're feeling especially fearful we focus on the uncertainties around us largely because those uncertainties fuel the confusion. And, keeping "confusion" active assures that we're likely to not take any direction action.

No matter how hard we try or how much analysis we look at, big decisions will never feel safe. 

One of the benefits of my work is the amount of data that there is that can be used in trying to help Clients resolve their personal financial issues. There are also an abundance of tools to use through which you can incorporate that data and fashion a reasoned and well thought out game plan.

Does that mean we should use all the data that there is?

We should if our goal is to create more confusion. 

Part of the "art" of Wealth Management planning lies in knowing how much data is the right amount of data.  As a rule, that would be the amount of data that allows for me to quantify why the "unacceptable today" has to be moved out of the way so that we can glimpse the "desired tomorrow." 

These concepts don't apply to only Wealth Management planning. They apply to all decisions of whatever kind. 

Taking action, beginning the steps toward resolution of a matter isn't going to begin with a focus on yesterday and tomorrow. You can talk about how you got here and where you'd like to be without ever once having to write down an action step. It all has to start from the realization that "today is an unacceptable tomorrow." 

All you really need to know is what's important now. 

If you can state that, you're on our way out of confusion and toward resolution and action.  

The Ostrich Problem

"After all, it feels good to keep moving, and who wants the frustration of discovering that they've actually been driving in the wrong direction...?

The snippet above is from an article at by Christian Jarrett on "The Ostrich Problem" and The Danger of Not Tracking Your Progress.  If you read the article you'll find a certain reference in there to yourself somewhere and it not to yourself most certainly to someone you love, or know well. (the fact that you don't recognize yourself is another ostrich problem.)


Now, I know that finance is my job and I tend to focus on it in most of the blogs I write so It shouldn't come as a surprise that I'm going to do it again. 

So, let's think for a moment about all the problems that the Ostrich Problem creates in the realm of personal finance and to help us all out, I'll list the ones that quickly come to mind; 

  • Bad investments
  • Bad insurance programs
  • Bad estate plans
  • Not having enough money for a goal
  • Not having enough money to retire
  • Not having enough money to stay retired
  • Leaving your heirs worse off than you'd ever imagined
  • Bad portfolio design

Ok, there's a few. 

Most of these maladies are caused by the simple fact that as humans; we avoid feedback loops that confirm the negative fears that we have. Like a plague we avoid them. And, this is what really compounds the bad decision.  I mean really, it isn't that we're somehow going to stop making bad choices but it's when we ignore them after we've made them that the damage starts to spread in an almost unworldly way. 

"The temporary pain of negative feedback is nothing compared with the crushing experience of project failure......."

Another snippet from Christian that rings so absolutely true. 

Risk in investing is and likely always won't be defined by market volatility. 

Risk in investing is the probability of not having the money you need when you need it. Think, daughter's wedding, kids college and worst of all, retirement. The problem with getting off course and not knowing it is that we have then no ability to initiate interim course corrections. 

I think that Christian might have it just right at the close of his article....

It's ok that you haven't been checking, now forgive yourself and start checking. 

One of the true benefits of planning lies not so much in it's ability to anticipate the future as it does in it's innate ability to quantify the present. 

One Size Fits Somebody...But Perhaps Not You

Few things in life are a given. Fewer things in personal finance are.  


But, history indicates that the personal preference is to forgo analysis, avoid doing the math and just follow some simple "rules of thumb." After all if we can withdraw 4% during retirement (maybe, maybe not), purchase 10x our earnings in life insurance and subtract our age from the number 100 to find out what percentage of our portfolio we should have in stocks....why bother to run any numbers?  The answer's right there for all to see, it involves no analysis or work. The "rule of thumb" must work, I mean if it didn't work, it wouldn't be a rule of thumb would it? 

Well time tested as it might be, the question of "should you pay off your mortgage" or save more money toward retirement instead seems to have finally gotten some air outside of the rule of thumb world.  

In a recent St. Louis Post-Dispatch article  the questioned was asked of a number of financial professionals who all had basically the same depends!! Yea! A vote for "it depends!"

It depends because, well, it depends.  As you might read in the article, much more debt exists post-retirement in America than we believe.  Paying off the mortgage has in many cases become a thing of lore.  

And, if you consider that we're about as near a bottom in interest rates as we're ever going to get, paying off your mortgage now should come with one substantive word of caution....the equity you create by paying down your debt may be equity you never see again. If you were to "leverage" your mortgage debt today, we could assume I think that at rate in the 3-4% range, after allowing for a deduction for mortgage interest, you're highly likely to arrive at a net lending rate that will be less what the reasonable projection for market returns would be.  That would seem to indicate that you can make more money by investing your money than paying down your debt. 

Math would then seem to indicate that if we get back to mortgages in the 7-9% range, we might not be able to get the same result.  That could mean that the equity you create today might not be accessible (at least and have it work mathematically later on) if interest rates cycles repeat.  And, as someone once said, "the future may not repeat itself, but in certainly rhymes." Last time that happened we went nearly 14 years before the interest rate shift made getting your hands on that money a worthwhile mathematical effort. 

So before take a leap of faith by following the rules of thumb, consider that some reasonable analysis might be a better way to chose your path.  

More on "rules of thumb?" Read my earlier blog post on this same topic here.  



4 Steps to Better Decision Making

Chip and Dan Heath, authors of "Decisive" have a great model for making better decisions.  What's most impressive about their view on the matter is the fact that if you sit back and think about it a bit, it's a universal tool. It works no matter what decision(s) you have to make be it at work or at home, in your career or about a project. Rejoice, the world gives out too few universal tools.  

So, what are the four steps; 


The authors use the acronym WRAP

  • Widen your options
  • Reality test your assumptions
  • Attain distance before deciding
  • Prepare to be wrong

Sounds easy, but we almost never do it.  

It's a discipline we can all benefit from learning, even if you have to force yourself at first.  

It's like going to the gym, easy to do, hard to stick with. Everybody can decide to go the gym and you're 100% guaranteed of success, because deciding to go to the gym is easy, actually going to the gym's the hard part. Someone once told me that in a minute you can quit smoking, it's continuously quitting smoking that's the hard part.  

And, contrary to what you might think, more choices are better than too few. There's research that shows that having multiple options, perhaps two or three are best, all in process at the same time allows for you to be less personally invested in the outcome. That will help to automatically widen your options and the multi-tasking part helps to keep the personal investment in any one outcome from getting so high that you can't give it up simply out of fear of personal upheaval if you walk away from what you "knew" to be true.  

Here's a tip; next time you have a decision to make ask yourself what you'd do if none of your current options existed? That just might set you on the right track to removing yourself from the harrows of narrow framing. After all, as Dan and Chip note; "focusing is great for analyzing problems, but terrible for spotting them." 

There are literally hundreds of examples I could site from the personal finance realm that span the decisions from, "I can't afford to retire today" to "which college should my child go to."  

Better decisions bring about better outcomes, starting making them by reading Dan and Chip's book but if you can't do that, start realizing that you can control the decision making process by changing how you make those seemingly "inevitable" choices.  

And if all else fails, get some help, narrow framing often resolves itself when someone on the outside is looking at the issues you can't see, it's that forest for the trees thing that's been talked about forever. And, it appears, with good reason.  


The Natural

In a recent blog post on The Financial Underground David Allen, world renowned productivity expert and founder of Getting Things Done (GTD) talks about a "natural" decision making process in personal finance. Unfortunately, he also talks about how we use this natural model in our day-to-day lives but fail to use it when it comes to big decisions. This weeks info-graphic lays out the natural method of solving for financial progress. 

Which Lever Do You Pull?

My colleague Carl Richards at Behavior Gap has it just right in his video blog this month.

There are literally a host of things that we can do to improve our financial lot in life. We can spend less. And we can save more. We can continue to work past our retirement date which has it's own benefits, more income contributed towards goals and your contribution to the workforce is increasingly being shown as both needed and a benefit to your long-term health.  

There are literally a host of things that we can do to improve our financial lot in life. We can spend less. And we can save more. We can continue to work past our retirement date which has it's own benefits, more income contributed towards goals and your contribution to the workforce is increasingly being shown as both needed and a benefit to your long-term health.  

It's the things that you can control that count. 

It's the things that you can control that count. 

We can down size our homes, or take smaller vacations. We can carefully consider college costs and opt for high quality schools and our own ability to guide our kids as opposed to Ivy League schools and student loans. 

Why then, as Carl suggests, do we always focus on investment returns as the central issue to concern ourselves with? 

I'd suggest that it's easier for us to focus on the thing we can't control because we don't have judge ourselves if it fails. It's long been known that investors tend to pat themselves on the back for good investment decisions when markets pan out and to blame some nefarious other factor when they don't, be it Europe, the Fed or the current administration. 

As I wrote last week, we have an aversion to taking control of things. Pulling the other levers as Carl refers to it, takes more thought and places the responsibility on us and it will be squarely in our path. That's harder than surrendering to what you can't control. 

Imagine telling your son or daughter that they can't go to Brown University because you simply can't afford it after the 2008 market and the summer swoon of 2011. Not your fault, the market took that money from you, you didn't lose it. That's a lot harder than deciding to work till age 70 or just sitting your kid down and saying; "we don't think that Brown is a necessary expense. You can do just as well at a smaller school with more focus and working harder." That's not a subtle shift in the conversation. 

Knowing that your focus should be controlling what you can control isn't new, but for many it's almost impossible. Until we can resolve that without planning you can't know what to'll continue to avoid it. 

The "doing/knowing" gap suggests that in many instances, knowing that something should be done is the equivalent of actually having done it. (Can't tell you how many married couples with kids I've talked to over thirty years that know that they should have a Will done and yet, after 13 years of marriage, don't have one.) 

We can finish on this note: doing/knowing will seem like the same thing, until it's not. And when that happens, you won't know what levers to pull, when to pull them or why. 

Save yourself the trouble and start making active decisions now, while you have both the time and space to consider their implications. Setting a course, a real course, has to be the first step in the process unless ignoring how you get somewhere is the way to go. 

Deciding where to end up is never hard. Knowing how to get there is, but doesn't have to be.