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What's the Common Bond That All of Our Clients Share?

  • Will you make it financially?
  • Do you know your financial blindspots?
  • These two questions form the backbone of our holistic approach to personal financial planning. These questions also are the common bond that all of our clients share.

    If your financial life is arranged so that you can maintain your current lifestyle for the balance of your life, the noise of daily life dulls into the background. On the other hand, if you haven’t fully prepared for future financial realities, the ups and downs each day bring new angst. Recognizing where you have financial blindspots can be vital to crafting a rational plan towards a secure financial future.

    Many important questions in life, these two included, require that you step back and assess priorities. No one has enough money to do everything they want. If retiring with more income is a priority, then making a tradeoff with current spending, (so that savings can increase), has to occur. One of the most prevalent blindspots we see is an unwillingness to accept tradeoffs.

    No one wants to run out of money. Trying to determine if you have enough to sustain your lifestyle until very old age is more than just a simple math equation. The persistence of inflation; the exact ordering of investment returns; actual spending; and how long you will live are all important factors. Since none of these are knowable in advance, ongoing planning and course corrections should be expected.

    Most financial blindspots can be traced directly to behavioral biases. These blindspots directly impact how you perceive risk. From being overly optimistic (overconfidence bias), to overweighting information that support your beliefs, (confirmation bias), the psychological blindspots are many. Professor David Hirshleifer, a finance professor at UC-Irvine recommends what he terms “self-distancing” in order to make better financial choices.

    This involves considering the opposite side of the decision as a way of balancing the biases. We call this “dispassionate discipline”, a core component of what we provide our planning clients. We all have these biases as they are “factory installed”. The key is acknowledging that these biases exist so that you don’t unnecessarily hobble your long-term financial objectives.

    Our primary role is to help clients understand long-term financial history and use that overlay as a tool for better decision making. Rational and realistic financial planning can’t be built upon a foundation of myths and misconceptions. In the end, your ability to deal with question number two likely forms the answer to question number one.