Moving From Apprehension to Comprehension
Before we can talk about our financial planning process, we first have to overcome the confusion of what financial planning entails.
Confronted with the array of financial decisions individuals and families face throughout their lives, many do not know what to do.
- Which investments should I select from my employer’s retirement plan?
- What mortgage choice is beneficial for my situation?
- What is the best way to save for college?
- When should I begin to take my Social Security?
Do you have in-depth training in investing, economics, insurance, taxes, or law to make these decisions? Have you ever heard of Harry Markowitz, the efficient frontier, standard deviation, amortization, or the difference between a testamentary trust and a charitable remainder trust? Yet, you are expected to make important and life altering decisions pertaining to these issues. How can you obtain financial security for you and your family?
This is where financial planning comes in.
Let’s approach financial planning as you would approach a medical examination with your doctor. Generally, you would focus on your symptoms:
- Where does it hurt?
- What’s the cause of your concerns?
With this information your doctor will run some tests, evaluate the findings, and prescribe a treatment plan. At the end of the visit you should feel more comfortable about your health care plan. The purpose of a financial plan is no different. Let’s begin the financial planning process from the point of view of control.
And to understand this, we’ll use another metaphor: that of driving a car. When driving, you control the steering wheel, your speed, and where you are going. You cannot control the other drivers, detours, and road conditions.
Now let’s put this into financial terms.
Do you have any control over these outside factors?
Of course not!
But as the driver of your “financial car” you do have 100% control over:
Your Investment Objectives
Your Risk Level / Time Horizon
Asset Allocation / Diversification
Your Attitude and Commitment
Your Choice of Advisor
The Difference Between Being Proactive and Reactive
How does understanding these control / non-control factors empower you to safely navigate today’s complex financial world? Let’s look at this graphically. When you focus on outside factors that you can’t control, all you can do is react to these events … and this can be scary and stressful. At Wealth Bridge Advisory we call this Reactive Investing.
When you concentrate instead on factors that you can control, which is Proactive Investing, you have more influence over the process. At Wealth Bridge Advisory, we focus on proactive investing. (Ask about the Brinson, Hood, Beebower study.)