Sunel’s Blog | Worth the paper it’s signed on

Sunél Veldtman, | 25 June 2021

Years ago, after presenting a comprehensive and holistic financial plan to a client, the client, dropping the document on the table claimed, “Of course, it’s not worth the paper it’s printed on. The moment we sign this, everything will change again.” Today, warning lights would go on about the value this person attaches to my work and financial planning, but back then I was still insecure about my value; even more so when needing to articulate it.

That meeting came to mind recently when I read a quote from Warren Buffett: “To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. You must supply the emotional discipline.”

Today, I believe more strongly that financial planning is a worthwhile pursuit. It has enormous value.  If you are using a strong, consistent decision-making framework and build from there, it is a useful tool in guiding decisions. Especially if a plan contains different scenarios and thinking about risks to the plan. Today, with sophisticated tools that are able to calculate the probability of success, we can help our clients make even more robust decisions.

But even a less sophisticated plan is better than no plan at all. Even if circumstances turn out differently from how you envisage them at the planning stage, the planning exercise is still worthwhile. It encourages healthy saving and investment strategies. Encourages diversification. Challenges misguided thinking. Helps anticipate the unexpected.  It helps you think through potential pathways so that you can develop the emotional resilience needed to deal with the ups and downs of financial markets and life.

Financial planning, sophisticated or simply done, is not just thumb-sucking either as my client suggested. There is a large global body of financial planners and investment managers who all believe in central theories and broadly agree on the practical implementation of them. It’s not a top-secret. It’s not rocket science, although it’s not simplistic either.

In most cases, financial planning is about getting rich slowly or about protecting wealth when you’ve made your money.  It’s not so much about making money fast. And it should not be about the latest investment fad or looking at the stratospheric returns achieved by early adopters of unproven investments.

Yet today, it seems to me that we are once again in an era where there are many temptations to throw conventional wisdom and financial planning out the window. The meteoric rise of Bitcoin (before the recent fall) and Tesla or a flat in London are just some examples of what people see and then think it should be about. Financial planning and wealth creation for most people should never be about choosing the winning share or making a bucketful from one investment. It’s not that you shouldn’t invest in Bitcoin or Tesla, or the flat in London, it’s just that it’s not needed for most people.

For most people, it should be about working, consistently and reliably, from a proven framework towards their goals. There could always be space for a ‘bet’ on Tesla, Bitcoin or the flat in London, but it cannot be the core of your plan. Warren Buffett made his money the slow but sure way.  He was not swayed by emotions, but just steadily moved in the right direction over a long time. That’s what good planning is.  And if you do make space for bets too, your plan should include the potential for their failure. That’s really good planning.

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