Software should be used to show clients what could happen — not will happen, or even will likely happen. It should help clients get in touch with how they would feel if their portfolio experienced certain scenarios so we can get a sense of whether they are emotionally ready for those scenarios. But it should never be sold to the client that we are charting a certain path in clear waters thanks to what the software is spitting out.

Thanks for the comments!

I think the involvement of an assumer turns a plan from a simple map to one of those GPS navigation systems that can recalculate your estimated time of arrival and suggest alternative routes as you run in to traffic conditions or traffic patterns that are different than you originally assumed.

To invest, you must make assumptions about the future. So to suggest that assuming is bad is to get on a bad path. The question is — are the assumptions you employ reasonable or not?

I am a critic of Passive Investing. That's because I view the core assumption of the Passive model — that for the first time in history ignoring price will somehow or other work out in the long term — to be so dangerous. My assumption is that price will always matter. I am often criticized by Passive advocates for my assumptions. I don't deny that I make them. What I deny is the idea that the Passive assumptions are somehow “neutral” assumptions and therefore more valid than the assumptions that show why Passive cannot work.

If you want to get out of bed in the morning and accomplish stuff, you have to start with an assumption that gravity is going to continue to apply. I think that the trick is not to avoid making assumptions but to try to be as clear about the assumptions we make as possible so that over time we can make better and better assumptions.

Rob

There are a couple of problems with assuming the worst historical numbers.

1. What if things were to get much worse than the worst we've experienced?

or,

2. What if, based on use of worst historical numbers, a family concludes that they have to save every last penny and invest more aggressively than they'd like and they have to work longer than they would like and they can't educate their children in the manner they'd prefer and they can't afford to take care of their parents in the event of a long-term illness? And what it, after making all of these “conservative” assumptions, things turn out better than they planned? Every one only gets one shot at life and that scenario potentially leaves a lot of unmet or deferred goals that they might have otherwise wanted to plan for and accomplish.

Regardless of who the “assumer” is, and it's important to know who's filling that role, there is still a balance that needs to be struck between preparing for tomorrow while still enjoying the fruits of your labor today. That, I believe, is the true value of a trusted financial advisor/planner.

-Rick Francis