We are all familiar with guardrails on highways. They are put there to keep a simple mishap from turning into a full-blown catastrophe. If you go a little off course, the rails help you regain the path towards your destination.

Financial planning functions in the same way by keeping you on path towards your financial goals. This is the real substantive value of planning, to keep you from being unintentionally mortally wounded.

Make no mistake, as author William Bernstein put it recently, “you are engaged in a life and death struggle” with the traditional financial services industry. Brokers, bankers, insurance salespeople, etc. are focused almost entirely on creating an emotional response to short-term events usually taking the form of an expensive packaged investment product. When you buy the “best fund from last year” or the “super safe annuity,” you are likely plunging your vehicle over the guardrails into dangerous territory.

Staying on Course

Financial planning starts with the simple premise that the only basis for making investment decisions is within the context of the plan. The plan provides structure and protection from often poor, snap decisions that might take you off course. In many respects, staying with the plan, in good markets and not so good markets, is what produces good long-term results. Planning (and the planner) provide the patience and discipline required to achieve longer-term goals. Investing is simple, except for the emotional aspects, which happen to be incredibly difficult.

What Should Investors be Doing Now?

Almost everything in the media each day is aimed at causing you to act, or react. The economy, the debt, Ukraine, Congress, Obamacare etc. all are immediate problems that generate an emotional response. I sometimes have one of the financial radio channels on while I drive to my mid-day exercise class. Often, I am amused that the interviewers end with a query to the “financial expert” about “what should investors be doing now?” I usually scream at the radio “nothing!” All of the emphasis on “doing something” is a direct danger to long-term planning. Substantial research has shown, over and over again, that the more you “do something,” the lower your returns.

Are your financial planning guardrails in good condition? Ready for a real conversation?

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