Three Financial Myths and the Straightforward Truth
-by Mark Olson-
Mark Olson, MBA, CIMA®
A myth is a popular belief that is false or unsupported. I have observed the following three financial myths and appreciate this opportunity to highlight and counter each one.
Myth #1: I don’t need a financial plan
The straightforward truth is everyone needs a financial plan. A financial plan is one of the most powerful yet neglected tools available for managing your resources.
Effective planning defines what matters most. It answers important questions and provides guidance for decision making. Appropriate investment allocations naturally roll out of a well-crafted plan. Byproducts of a thoughtful plan include increased understanding, harmony and a sense of peace. Who can’t use more of those in their life?
Unfortunately, we all have behavioral tendencies that often keep us from doing what is best. While most conscientious individuals sincerely intend to focus on the big picture and develop some type of plan in the future, the inertia of the status quo normally prevails.
To increase the probability of acting on your good intentions, get some help. There is wisdom in listening to and taking good advice. Identify and contact a qualified, experienced, unconflicted financial planner to begin a conversation and develop a plan.
Myth #2: A competent investment advisor should have the insight to consistently predict the market
The straightforward truth is the most knowledgeable and sophisticated investment advisors humbly acknowledge market timing is not successful over the long term. They allocate portfolio holdings across the broad range of asset classes. Those asset classes include non-US developed equities, emerging market equities, US equities, real estate, fixed income and often hedge strategies plus other alternative investments. Each of these asset classes provide different sources of return which all help capture returns and mitigate risk.
Despite the steady flow of inputs from the media regarding attention-grabbing, timing related investment tactics, disciplined asset allocation remains the wisest approach over the long term. Thoughtful asset allocation is like the quote about democracy attributed to Winston Churchill. He stated emphatically, “Democracy is the worst form of government except for all the others.” Asset allocation, like democracy, is far from perfect, but over the long term provides an extraordinary way to generate returns and manage risk that surpasses all the other schemes.
Myth #3: Giving decreases wealth
The straightforward truth is giving increases wealth because true wealth is linked with well-being.
Giving is perhaps the most powerful antidote for the toxic elements of self-indulgence and self-promotion permeating our culture. Giving is an investment that benefits the giver as much or more than the receiver. An added dividend for true givers is a dawning awareness of contentment that develops along the way.
Unfortunately, fear and anxiety often restrict openness to giving opportunities and options. The long-term solution for increasing the level of giving is to develop a financial plan. The plan will help clarify values, priorities and giving potential.
To better manage your resources, be a planner, invest in well allocated portfolios that flow out of your plan, and be a giver. If you embrace those initiatives, you will never regret it and most likely will be surprised by joy along the way.