Nowhere it seems, is the clutter of non-essential information more prevalent than in the financial services space. Last September, comedian Bill Murray posted a tweet that made me laugh out loud. It read “My decision making skills closely resemble that of a squirrel when crossing the street“. After getting picked up by a few humor sites, within days Murray’s comment had been re-tweeted more than 1,600 times. Clearly something in the tweet resonated in the popular psyche. Several months later I couldn’t help but recall Murray’s tweet while casually browsing through Barnes & Noble. There on the rack near the checkout, in prominent 2 1/2 inch block lettering was a magazine headline broadcasting “Make More Money: 45 Great Ideas That Will Help You Prosper In the New Year.“ Really? 45 great ideas this year? What about next year? And the year after that? Small wonder many investors occasionally feel like the proverbial squirrel caught in traffic. Even the prophet Moses came off the mountaintop with just Ten Commandments…and those were supposed to guide the Israelites an entire lifetime.
These days, much of the financial media is devoted to publishing content that frankly is of little practical value. While a steady menu of headlines that read along the lines of “Investing Secrets of Google Alums” , “CEO’s Who Hedge Their Own Stock“, “Great Stocks Under $10”, or my personal favorite "The One Fund You Must Have in Your 401k" (all actual headlines lifted from the covers of nationally circulated publications) may have a certain titillating appeal, the diet provides financial calories without any real nutrition. The average investor (or investment advisor for that matter) would be far better served tossing the whole lot in the compost heap, staring out the window for the twenty minutes or so it would have taken to read the articles, and creating the detached time & space necessary to critically think about the essential elements of piecing together a sustainable financial plan.
In the 30+ years I’ve spent advising clients and their families, I’ve come to understand that the natural principles of responsible financial planning are not all that complex and they really don’t change from one year to the next. You probably have your own short list, but here’s mine:
- Spend less than you earn and invest the rest.
- Start early and don’t stop. Ever.
- Diversify your investments and plan for the unexpected.
- Make a written plan and measure progress to plan annually.
- Longevity risk is real.
- Keep your investment expenses in check.
- Don’t forget taxes and inflation.
What is difficult in this equation? Execution. Execution is hard. The simple fact is all financial events (both on a personal and a macro-economic level) unfold in a distinctly non-linear fashion. According to Murphy’s Law, events always seem to maliciously unfold in ways that conspire to disrupt whatever plans you may have had in place. Despite the false allure of quick makeovers, remember there are no shortcuts that will help make execution any easier or shore up a consumption pattern that is fundamentally unsustainable. More often than not, any so-called shortcuts just get folks lost in the weeds. The sooner you get that part figured out, the sooner you’ll be standing in tall cotton. Won’t that be a hoot?
Michael Reid, CFA is a Managing Director and Partner at Exchange Capital Management who some say spends much of his free time both barefoot and shirtless. The opinions expressed in this article are his own.
