23 Aug Stay with it
Image by Kaenori on Pixabay
While there are those who often claim that success in an endeavour is a function of how well you persist at it, even if it isn’t the 10,000 hours suggested by Anders Ericsson and later Malcolm Gladwell, there is arguably more to it than that. It is also necessary to have goals with which you are actually able to persist. A good adviser recognises that what works for one person will not work for everyone and adapts their solutions accordingly.
Consider the example of someone who has seen a friend lose an impressive amount of weight by following a particular diet and exercise programme and decides to try the same regime. It involves avoiding carbohydrates, early morning high intensity exercise and long cycle rides. Fairly brutal stuff for someone whose previous exercise regime consisted of running to the bathroom only after a particularly aggressive takeaway curry.
Perhaps unsurprisingly, after enduring a week of this torture, our aspiring weight loser decided that it was more than he could stand and baled out of it. It turned out that he actually preferred a life of eating junk food and drinking beer and it put him off any alternatives to that for a long period.
Maybe in this instance, a more progressive approach would have been better; something created specifically to meet his requirements by someone familiar with the sort of issues that he faced. The steps could then have been more gradual, starting with brisk walks and reducing rather than stopping the alcohol intake altogether. The result would have been a slower rate of weight loss but he might have found that it was much easier to maintain and would therefore deliver a greater long term benefit. However, it is probably unrealistic to think that most people could have managed this without help – the evidence can be seen in the huge peak of new gym memberships in January, which then tails off rapidly as the new year resolution enthusiasm diminishes.
It’s a similar situation when it comes to financial planning and investing. You might envy those of your friends who won big with risky investment strategies but it’s not necessarily the case that those would be suitable for you. First, your objectives may be different (which is highly likely) but second, they may fail to mention some important facts such as the times when it didn’t work and the amount of work they put into it. If you don’t see your finances as a hobby but as the means to an end, it might not fit with your plans to spend every evening and weekend playing with spreadsheets and reading market forecasts.
Just as our protagonist was unable to stay with his diet and exercise plan, very few people can maintain a strategy which relies on high risk investments for the sort of time period that might be necessary for it to work. Even fewer can do it without external help.
Rather, whether you are trying to lose weight or build up liquid capital, success is more likely to come to those who are willing and abler to accept a certain amount of discomfort and uncertainty on the way in exchange for a better long term outcome. The important part is therefore identifying the appropriate balance (for you) that addresses both your desire to achieve your long term goals and the extent to which you can live with the bumps in the road on the way there. The usual way to handle such conflicting elements is compromise – either you adjust your goals so that the discomfort is manageable or you learn to accept the discomfort and stay with the same goals. Only you can make this decision in relation to your own circumstances, although a good adviser can help to clarify your thinking and to quantify the implications of each option.
The important thing is to recognise that you do have a choice. An adviser can help you to identify what those are and the implications of each option. Is it more important to retire from your job on schedule or to fund your children’s university costs? Could you do both, such as by working part time, doing consultancy work or reducing or deferring other expenditure?
Just as a good personal trainer will not recommend that someone for whom the term ‘couch potato’ is an aspiration should aim to lose half their body weight in six months, a financial planner will work with you to help you manage your expectations and to balance the pursuit of your goals with the other aspects of your life.
Something else that a financial planner will do is to assess your capacity for taking risk. This is the extent to which your resources would permit you to weather unfavourable investment conditions (whether in the form of a sharp fall or just a lower long term return than anticipated). Again, this is specific to you and it is very unusual to find two people with exactly the same set of circumstances, goals and attitudes.
Another aspect is that the world is not constant. Change is always with us and our lives continually evolve, often not in the ways that we might expect. A financial plan needs to be able to accommodate these changes and to adapt to them. You might be an enthusiastic triathlete in your twenties and thirties but at some point you (or at any rate your body) may decide that a daily walk is adequate exercise.
Just like the starting point, the changes will be different for each individual and in order for any plan to be effective, it needs to be sufficiently realistic and detailed to meet their needs. It also requires commitment to stick with it, particularly when things are not going as expected.
Of course there is nothing to stop you from trying to do this on your own. It just might be easier with someone to keep you on track and to remind you of why you are doing it and when course corrections might be necessary if life bowls you a bouncer.