The Planner's Perspective: Why Not?
By Paul Morrone CFP®, CPA, MSA
When I was in college I had a philosophy professor who told us a story on the first day of class. He spoke of a final exam that was administered when the professor walked into the classroom and simply wrote “Why?” on the chalkboard. Confused, the students asked where the exam was. The professor pointed to the board and said, “answer the question that is asked.” For the next 90 minutes, the majority of his students furiously wrote small novels in the notorious college blue-books attempting to explain the concept of ‘why.’ One student defied the norm, quickly wrote only two words in his notebook, handed it to the teacher and walked out. “Why not?” received the only A in the entire class. Bear with me here, you'll see where I'm going with this in a second...
This story may seem a bit arcane in the context of investing, but it explains in a very simple manner the arduous process many individuals struggle with when it comes to making a decision. That process is even more difficult when it comes to their hard-earned money. Those that are hesitant to invest will find a million reasons not to. Most of what we’ve heard over the past 18 months involves feelings about our President, but truthfully that is just the flavor of the moment. North Korea was a hot topic, briefly. Before that it was the election, before that it was Brexit. Going back even further, we had Greece on the brink of default, scares of an Ebola epidemic, government shutdowns, a so-called ‘fiscal cliff,’ and the list continues. What is lacking from this list is any fundamental evidence not to invest.
At the individual level, speculating and forecasting leads decisions based on emotion, which study after study show ultimately harms the long-term investor as they tend to woefully underperform even conservative benchmarks over the long-term. These emotional decisions are driven by all of the the noise that is becoming increasingly inherent in our hyperconnected world. The decision to stay on the sidelines, or sell out too early, is often driven by political biases, fear created by the media, or just a general feeling of ‘this has to end and I want to be on the sideline when it does.’
Simply making a decision and committing to it may be the hardest part for most, however, the cost of not doing so can be substantial. I also generally feel that most people tend not to invest as they should because they really can’t visualize what they are investing for. It’s easy to picture your dream home. It’s tangible and many people successfully save for one because they can see the ocean view, the master bedroom suite and the big chef’s kitchen. Visualizing retirement is much harder, its intangible and there are a myriad of uncertainties.
Working with an advisor to develop your plan, visualize your future lifestyle and establish measurable savings goals is a strong first step. The harder part still is committing to that plan and staying the course with your investments. With everyone’s lives so crazy, you always be too busy, there will always be an unexpected expense and there will certainly always be something going on in the world that can create unwarranted fear. Whether it’s for retirement, your dream home or your legacy, can you really afford not to have a plan?