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The financial plan is only the first step. This week’s Behavior Gap Radio show discusses what happens after you define where you are and what’s your destination. The reality is that even though you’ve made a plan and you’ve set your goals, things change. You’re rate of return was less; your daughter wants to go out-of-state for college; you get a bigger than expected bonus.
For each of these events, you’ll have to adjust your plan, in the same way that an airplane pilot makes adjustments to his route during the flight. You both want to reach your destination, which requires a willingness to fix things as you go along. So why even set goals or make a plan if things will change? Because you have to start somewhere. Starting is half the battle.
While some individuals feel comfortable doing the planning and changing themselves, you’re not alone if you want help. Despite everything you hear about the bad apples, there are plenty of good financial planners out there. We refer to them as members of the Secret Society of Real Financial Planners (SSofRFP). Finding them is a challenge. If you’re interested, please contact either Bill or myself to help you connect with a good financial planner.
Final note: The process of planning shouldn’t be confused with the product of planning.
We’re also pleased to announce that J.D. Roth of getrichslowly.org will join us on a future show. He’ll discuss how he got started and what financial planning means now after he achieved his goal of getting out of debt.
You can find Carl’s guest post, Investment Risk and the Growth of Wealth: The Importance of Course Corrections, at getrichslowly.org.
Bill’s book, The New Coffeehouse Investor, is also available for purchase.
Today’s regulatory structure is not what anyone would design from scratch. Still, I haven’t seen strong arguments for a major reshuffling of the boxes. Most of the arguments assume that the box reshuffling is somehow associated with a major strengthening of political will and thus must be a good idea. I haven’t seen a good analysis which holds the amount of political will constant and shows that a box reshuffling will bring major benefits. In my view box reshuffling may signal political will but it will not itself cause more political will, so we should be holding the political will variable constant when doing our normative analysis.
If there are two ideas I would like to see take root in regulatory reform for financial services, it is the following:
a. Do not trust the states with anything really important.
b. Do not trust international agreements with anything really important.
A Simple Theory of the Financial Crisis; or, Why Fischer Black Still Matters
Fundamentally, the current financial crisis is not about the bursting of a real estate bubble. Although housing and subprime loans were the proverbial canary in the coal mine, the real problem was that investors chose too many risky assets of many different kinds. Nor is the financial crisis about mistakes in the banking sector, although many such mistakes were made. At bottom, the financial crisis has been a story of how poorly suited we are at handling unexpected systemic risks, especially those that stem from the so-called real economy. In essence, the story of the current financial crisis can be told in three broad chapters: (1) the growth of wealth, (2) the decision to opt for risky investments, and (3) the underestimation of a new source of systemic risk.
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