Financial Plans are a JOKE

I agree with the Churchill statement. Plans need to be regularly updated to address changing circumstances. But the act of planning has huge value. It is in drawing up a plan (that will need to be regularly revised in unexpected ways) that we develop insights. Planning forces a focus on the particulars that reading and thinking and pondering and talking things over does not supply.

Rob

Great quotes. Reminds me of the old wartime quote I heard somewhere about successful military strategists...

Every general has a plan until the first shot is fired. The best strategists realize the battle is dynamic, not static, and those who don't are usually forgotten to history.

Bold statement as a header. I liked this post.

Yeah, I was told that I have to improve my titles...

I'm in full agreement that the PLAN pales in comparison to PLANNING, but I won't go so far as to call financial plans a "joke." The weight should be placed in the planning and not the plan, but planning is essentially executing a series of plans. And by "plan," I am referring to the intangible intention for action.

We cannot have PLANNING with out PLANS. That said, some plans are a joke and that can include those tangible, two-inch-thick books that collect dust as well as some of those intangible intentions documented within.

Plans are to planning are like what compass headings are to navigation. You cannot rely on a compass heading alone to find an island in the middle of an ocean, that would be a joke. But when you introduce the navigation process (regularly plotting your location relative to your destination), you can adjust your compass heading as needed, making course corrections. But ultimately you arrive at your destination by following a series of compass headings.

Just to carry the navigation analogy a little further. The role of the assumer is essentially the navigator. If the oceans didn't have currents, if the winds always blew in a favorable direction, and if there were never storms to avoid, the navigator wouldn't have to factor any of that in, but that's not a realistic assumption. Instead, by making reasonable assumptions, the navigator can choose compass headings that will compensate for winds and currents, not perfectly, but better than nothing at all. Or, the navigator may plot a route around reefs, storms, or pirates because they have the time and access to resources to not have to take those risks.

Even though GPS satellite navigation (fancy financial planning software) may have replaced the sextant, almanac, and timepiece (pencil, abacus, and back-of-napkin) to determine where your are relative to where you want to be, you still need a navigator (assumer) to determine the compass course (plan).

Agreed. Thanks for adding to the conversation. I really like the analogy of making course corrections. Sure you need to have a flight plan, but without the course corrections along the way the flight plan would be a joke.

In fact I have heard somewhere that the space shuttle is off course 95% of the time. If you accept the fact the moment you walk about the door something in your plan will not go the way you thought then you realize that it is the ongoing course corrections that really matter!

Very provocative, Carl -- you know how to grab the idle surfer's attention!

The space shuttle analogy is a good one. Without a flight plan the shuttle can't even get started, but once it IS started the plan requires constant adjustment and correction. Same with financial plans; it is the act of going through the process that helps people get their priorities in order, develop goals and get a general sense of well being that they have a plan in place. But then it falls to the planner, who is the pilot, to keep the ship on the right path, factor in new developments, and be sure that where the client is heading is still where they want to be heading.

The investment industry has made financial plans a commodity, and I'm glad you're exposing that flaw for the investing public to see!

Thanks Jack.

Sometimes I wonder how much of the act of being a good "pilot" is experience [knowing the client, and the anticipating how they will react to changes in the landscape] vs. use of assumption software?

It seems that many of the best planners I know are yellow-pad planners. They just know that over time as they develop a deeper relationship the course will become more clear and don't push the client to make a bunch of unreasonable assumptions at the beginning...

Make sense?

I know you have to have a flight plan to even take off, but what is it was as simple as "lets get up in the air a bit and see what the conditions are and then adjust..." the problem with the flight plan analogy is that most the client I deal with are not sure of the destination to start with. Most people don't know where they are going to me 5 years from know let alone what retirement will look like...

Carl, I don't think being sure of a destination is a requirement. Even with "lets get up in the air a bit and see what the conditions are and then adjust..." you pick usually a direction to start in. Why did you pick that direction? Maybe a client does not know when or if they want to stop working, or how much they'll need in retirement.

We can still make some important decisions today about how much to save or how much to allocate to stock market investments by picking a point and heading for it. But that point does not have to be arbitrary. By establishing some parameters around vague goals, we can find a point that will help us move in the right direction and yet allow us to appropriately deviate when the destination become more clear.

Let's say a client does not know how much they need to support their retirement lifestyle, they may be able to constrain or define a reasonable range such as it will be at least X but probably less than Z. Knowing that and other information about a clients priorities, we can find a point, Y, to aim for and make other necessary decisions today. Y is just a placeholder, and it's subject to change. But it's probably reasonable enough to get moving in the right direction. Therefore, when the destination picture become more clear, we're less likely to have to tell the client they must double their savings rate or something else drastic.

Christopher Columbus didn't know exactly where he was going but had an idea of what he was looking for, enough of an idea to know he had to sail west.

Since we have been in disagreement on a number of other points, I wanted to take 10 seconds here to say that I very much agree with your take re this one, Dylan.

Rob

I love the heading and the post. The comments are starting to get better than the post though. I love the idea and concept that you are bringing out. The generic financial plan I think is a complete failure. It gets people believing in unrealistic goals and expectations. You said it yourself in the comments, that the best planners you know are yellow pad planners. I'm guessing that they are up front with their clients instead of throwing a stack of papers in front of them. I see so many planners pile assumptions and predictions in front of people that are based on misinformation. If more planners were up front and set the proper expectations of charting a course or using the analogies that have been mentioned here, not only would we have more financially successful people but you would have a foundation on which to build a solid industry on. Instead we are left with the bad reputation so many financial people have earned.

I totally agree. A plan is no good unless it is ACTIONABLE. It does no good to know where your money should go, unless you actually DO something about it. A plan is a noun and can collect dust. Planning implies ACTION. Money generally doesn't save itself, or funnel itself into the appropriate account.