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Image of the month
By Carl Richards
Many people spend a lot of time and energy focusing on things that they can’t control and that are not important. This can be particularly true regarding investments and retirement planning.
So, one part of our role as real financial planners is to help you to avoid the noise and distractions that can blow a great financial plan off course.
EXPLORING THE ISSUES YOU CAN’T CONTROL
Financial adviser Carl Richards, the author of Behavior Gap (and the creator of the illustration above), tells this story:
“My son, who was ten at the time, was playing lacrosse. My Mom came to watch. It was a beautiful, sunny fall day, with a crisp blue sky. It was a great day for a father to be watching one of their kids do something cool, and it should have been an amazing day for my Mom.
“But I could see as she walked to the game, like a hundred metres away, that something was wrong. She sat down and I said, “Mum, what’s wrong?” She said, “Oh, nothing,” and I said, “No really, what’s wrong?” She said, “The dollar. I’m just so worried about the dollar. It could collapse.
“My Mom, as far as I’m concerned, controls the universe, but she has no control over what happens to the dollar. So, we started talking about that intersection of these two circles — things that matter and things that you can control. Because if it doesn’t matter, why are you worried about it? And if you can’t control it, why are you worried about it, other than to plan around it?
“If we can think about the intersection of things that both matter and that we can control, that’s really where we should focus, because that’s what will make a difference.”
Many people worry about the performance of the markets, changes to the law, or how one major currency is performing against another. However, it’s important to remember that there are a lot of things over which you have no control:
- Stock market performance
- Geopolitics
- Trade relationships between nations
- Corporate performance and profits
- Inflation
- Retail sales
- Gross Domestic Product
- Tax rates and laws
- Interest rates
- The weather
- Who the next James Bond is
Instead of worrying about whether the FTSE is up or down, you should let go of the things you cannot control and focus on what you can control, namely, your own behaviour. By doing this, you’re likely to be much happier and you’ll avoid undermining the returns your investments can earn.
Remember that the investment process only matters to the degree that it will influence your behaviour. Your portfolio may not be the absolutely most efficient thing in the world, but if it will help you to reach your goals, then it’s good enough.
The good news with investing, and with wealth management more broadly, is that if you were to make a list of all the things that actually matter, most of them are factors you have control over. These include:
- Asset allocation
- Your goals and aspirations
- Your behaviour
- Your mindset
- Your work ethic
That means our job is to keep you on track, ignoring the noise and helping you achieve those things that are most important to you. That sometimes means talking about the nature of the financial markets and helping you to understand issues such as risk and volatility – the aspect of investing that we have no control over.
By building a financial plan with you, and regularly reviewing it in light of your goals and the ‘uncontrollable’ factors above, we can help you to stay on course.
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