When You Know What You Are Trying to Do, How Comes Easier.


All good plans cover four parts:

  1. Standards I wish to use to govern my life
  2. Strategic goals I wish to achieve.
  3. Tactics that will help me achieve my strategic goals
  4. Logistics, being how I implement tactics

Many people think tactics and strategy are the same thing.  Despite what advertisers would have you think, they are not .  For example, there is no such thing as a pension strategy. There are pension plan tactics that help achieve the strategic goal of providing retirement income.  The connector between the two is the answer to the “How?” question.

“How?” is goal seeking. Goal seeking comes in five parts:

  1. What specifically, and as narrowly defined as possible, am I trying to achieve? Something like, pay off $25,000 on my mortgage by noon on the 10th of December 2022.
  2. What specific resources will I use to achieve that goal? $300 per month plus an interest saving will be close.  I will adjust for a raise I may get in the interim.
  3. Who will be responsible for doing it? Could be me, my spouse or maybe a pre-authorized debit at the bank.
  4. How will I monitor achievement?  Could be a semi-annual review of the mortgage statements.  In a shorter time frame, there is little to do but be sure the bank cleared the extra payment.
  5. Who will check that it is done?  Like a teacher who checks homework.  Things that will be investigated are done better than things that are not.  For some tactics, an external advisor can be responsible for the 3Rs of implementing.  Record Review Revise.
  6. What conditions will force revisions? 

The advantage of narrow and specific goals is that they are easy to understand and easy to check.  They sometimes are too ambitious though and you should  always retain the ability to modify.  If you lose your job, other rules will apply. Specific tactical goals that are impossible, show up quickly and people learn about how their resources and goals fit together.

Modifying strategic goals based on different parameters. They are incapable of a 3R review. 

Financial planning is not the most important thing in your life. There are many strategic goals that are unrelated to finance. Things like raise healthy and productive children. Be a good spouse. Be mentally and physically healthy. Contribute to your community. 

Good financial planning will not automatically achieve those goals for you, but weak financial planning will make it more difficult.

As in personnel management, money is a dysfunctional motivator. More than needed will not help much, but too little will harm.

The purpose of planning is to balance your life across time based on your preferred lifestyle, available resources, prevailing risks, and your strategic vision.It is about assigning meaning to your financial life. 

Tactical methods are tools and techniques. Choosing tools wisely is part of planning and you cannot do that until you know what they are trying to achieve.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

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What are Financial Advisors For? 


People seem confused about what financial advisors should do for them.  It is not their fault, advisors seldom come to grips with the issue.  Selling takes precedence.  Close ratios, new clients, and cross selling get the attention. All important to advisors, not so much to clients.

There is a more complete set of latent values that good advisors, from insurance sales, to tax accountants, to lawyers and investment managers, bring to the relationship.  Clients should notice them.

  1. They know the client is the planner and they are the helper.
  2. They help clients find voids in their planning.
  3. They help clients identify and deal with conflicts in their plans.
  4. They do not try to tell clients what to think but they do tell them what to think about and what they need not think about yet.
  5. They help clients understand that financial plans support their life plan. Poorly done, they limit the life plan.
  6. They bring information about ways to get what the client wants. Tools and technique are tactical skills and few clients have more than a passing awareness.
  7. They help the client learn about strategic vision, priorities and financial literacy.
  8. They help with implementing.  They have access to a much wider tool inventory and have prepared wills, tax returns and trusts before.
  9. They help record results.
  10. They review results and compare to the intentions of the plan.
  11. They find ways to revise the plan to make it closer to its objectives.
  12. They communicate with other interested parties.
  13. They are cheerleaders and managers of emotions like fear, greed and impatience.
  14. They are a conscience.  “You put that money away for Emily’s education.  Why do you want to use it to buy a sail boat?”
  15. They help clients assign meaning to financial information in the client’s unique context.

Advisors sell themselves short and so clients come to believe they add little value. Just a product I don’t understand and probably don’t need.  Clients are pushed along the floccinaucinihilipilifcation path by financial media types and government regulators.

If you do not express and show your value, people will assume you provide little.  Advisors, get busy on an information program.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

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Regulation Has A Huge and Unseen Cost


The way president-elect Trump dealt with the Carrier proposed migration to Mexico is interesting.  Not because the cost is significant or the reulst material, but because of the format.

Politicians like to give incentives to businesses to do things.  Why? Because it gives power and prestige to their position. Both of those feelings have a cost to all the citizens.

I hope that Mr. Trump sees the error of this approach.  There is a far better way to deal with the problem, but at the cost of political power and prestige. Therefore, highly unlikely to happen.  We can hope for new and better.

People need to see the meaning of incentives. Something is wrong and the cost to be here is too high.

The better way is to not incentivize businesses, but instead avoid de-incentivizing them. Labour rates are often the excuse for moving, but not the reason. Hourly rates in Mexico are much lower but costs to train, supervise and maintain quality are much higher.  The work ethic is different too. Labour rates are the excuse, but not the reason.

What about regulations?  In the U.S. there are hundreds of them that add tiny, if any, value and high costs.  What is the corporate tax rate? Can management hire and fire at will based on performance alone? What about safety standards? Years ago a major chemical company replaced 42″ safety railings around vats with 36″ railings because the regulation said 36″.  Foolish rules and regulations have replaced common sense amongst bureaucrats.

It is like the Laffer Curve for taxation.  Once you pass optimal regulation, you start to have negative outcomes.  You end up paying twice. Once to create, maintain and enforce the regulations and again to pay people to stay and be subject to them.

So the easy fix. Make the business environment such that businesses want to be here. Then you will not need incentives to keep them. You get more of what you reward and less of what you punish. 

Who knew that could work?

Hard times though for regulators and politicians who like to be bossy while also being generous with other people’s money.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

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Cost-Benefit Analysis


One of the key techniques in decision making is the analysis of costs versus benefits.  Some people are very good at it while others struggle. It appears that skills like accounting and business management will not necessarily give you a head start.  Some of it is just common sense.

Last week my friend Bob returned from Arizona.  A golf trip coupled with a visit with his son who is an administrator in a hospital there. While discussing the day’s recent round with him, Bob mentioned hitting a drive into the deep rough and sand and finding his ball without trouble.  Son was horrified.

The cost-benefit for finding your golf ball in the rough in Arizona is different than here. There are potential costs beyond the loss of a $5 Titleist Pro V1.

Rattlesnakes live in the rough too.  They have little interest in your golf ball, but are a bit cranky if disturbed.  Bob’s son pointed out that the cost to treat a rattlesnake bite is quite a lot more than the cost to replace a golf ball.

CNBC did a story on this in 2015.  Here

snake-bite-treatment-invoice-cnbc

We know that you will not be bitten every time you go in the rough. From a pure financial viewing point, the odds of being bitten must be less than about 30,000 to 1 to break even on an expectation basis. If we add in lost wages, incidental costs, pain and suffering, I think 40,000 to 1 might be necessary.  Right 40,000 times, wrong once and you break even is a poor betting structure

Usually odds of losing like those are close enough to zero that you might not care.  On the other hand, the proposed gain of $5 is not enough to motivate people much either. But people do not like to lose and faced with certain loss they make very weak decisions.  The tiny loss of a golf ball can seem important. 

Beware decisions where there is a certain but tiny gain to be right, and a low probability but very high cost to be wrong.

That is why life insurance is hard to sell. People can see the $5 ball sitting on the sand, just past that patch of stones and grass.  They cannot see the snake.  Easy enough choice.  But wrong. Just like 40,000 to 1 is about the odds of a particular insurable 30-year-old American dying next week.  Not much chance, but someone will.

For an individual, probability is meaningless. At the end of the week, you will be 100% alive or 0% alive. Where the cost to be wrong is very high, possibly unaffordably high, the tiny cost saving to do nothing is a foolish saving.

It is not just rattlesnakes either.  Another friend found his ball alongside a small lake in Florida.  He also found an alligator between him and the golf course when he turned to go back.

Even with very high odds of there being no problem, the probability of a mistake is not zero.  Know what the odds mean to you specifically and address the problem wisely.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

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How Many Advisors Do We Need?


My friend Sipho in South Africa recently told me there are about 8,000 people for each advisor in his country. I dug up some other stats on the subject and find that there are about 1,200 in the United States, about 3,100 in the UK, around 1,800 in Australia, and 259 in Singapore.  Prospecting must be challenging in Singapore.

As with all statistics, (and we don’t know if the definition of advisor is a constant) it is smart to go a step beyond.  What should the ratio be?

There are two considerations:

  1. How many people would benefit from the service?
  2. How many advisors will there be given the rewards for being one?

I have not done much research on this subject but many advisors in the UK left the business a few years ago because it was no longer an attractive way to make a living.  So, a higher ratio.  The question of how many  links would benefit seems to have been unconsidered.

There are many reasons the benefit side should have had more prominence.

  1. People don’t know enough about financial products.  They hold uninformed beliefs about many of them and have no strategic vision.  That means they have no method of attaching the methods to a well formed plan.
  2. People are emotional.  Greed, fear and impatience being among the more insidious. Advisors provide a damper. Ideally by putting current events in perspective of the strategic vision.
  3. People procrastinate.  Advisors can be quite task driven. A well crafted plan is of no use unless implemented, tracked, reviewed and revised.
  4. Isolated facts are useless.  It is useless to know that out of a group of 100,000, 65-year-old male in the United States, 2,457 are expected to die within the year.  To have meaning facts must have context. Something like half of 65 year-olds live to 83 and 10% of them live to 93.  Connecting that with your known health, family history and your lifestyle can give you a clue about how much money you can draw from your savings next month.
  5. Hype is debilitating.  Money needs a guardian, but many people don’t use one. Government and media perpetuate the belief investing is rigged in favour of the advisers. Financial planning, execution and continuing evolution of the plan is not an easy do-it-yourself task. Beyond that, good advisors provide a conscience, cheer-leading services and emotion soothing.  Those softer services provide the greatest financial result.

So long as people hold the idea that saving pays off tomorrow and spending pays off today, there will be a need for external guidance.

For the people who get the fundamentals of financial management, advisors can provide value by helping them see voids in their thinking, identifying conflicts and offering a larger product shelf than they can acquire on their own.  Efficiency has some value.

People should decide if there is a cost/benefit to using an advisor and proceed accordingly.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

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Hope, Fear and Expectation


Hope, fear and expectation drive most of the bad feelings we have when things go wrong in our investment world.  They are not part of the risk parameters of a share in a business, or a bond, but when the security does not perform as we hoped and expected, we feel pain.  Pain leads to fear and fear leads to weak decisions.

Hope, fear and expectation should be part of our long term plans, but they have no place in investment decisions.  Steely-eyed objective is the ideal, there.

In a financial plan, hope gives us motivation. Expectation lets us compare and control the process.  Fear causes us to understand risk and then do something about it.  They do not work when applied to a specific task or product or technique.  They are strategic ideas.

When strategic ideas become more than the background, tactical decisions become very difficult.  We don’t buy fire insurance based on how we feel, we buy it for what it does.  Same thing for designer credit cards.  What they do matters.  How they look does not.  Tactical decisions should be reasoned decisions.

Investments are clearly tactical. Investments are a time machine.  They move money from now to the future so it can be used to acquire things we need then. We hope and expect they will be there, vastly larger then and we fear they won’t. None of those feelings represent intrinsic investment values.  They are about us.

If we let the “us” side of investing dominate we will do badly.  We care about investments, but they don’t care about us.  It is not a symbiotic relationship.  Not like children who we love and they love us.  Investments are aloof.

Being aloof, we can compare them rigorously and not care about their feelings. We can sell them when we are done with them, without remorse.  If they under perform, it is because either we made a mistake and we should sell, or because the market is making a mistake and we should buy more.  Nothing personal.

If we allow our emotions to be the first response, we are being immature.  Good investors are objective and patient.  Often skilled too but that is not a serious requirement for most of us.  We can buy skill.

When we over use emotion, we became susceptible to hype.  Either fear and sell everything or greed and buy everything. Neither fear nor greed are sound principles for investment success.  Patience and objectivity work.

If people were patient and objective, you would not see TV shows like Jim Cramer and you would never see ads hyping gold as a defense to global economic chaos.  China and Russia have many problems of their own, destroying the US dollar is not an urgent priority for them. When you make business, economics and finance into entertainment expect to see entertaining things that are a little narrow.

Financial literacy is about meaning not about news. If your first response to news is emotion, you aren’t doing it right. Decide if the news matters or if your emotional content is too high.

Humans are not good at objective reality. Consciously manage expectations and you will see less emotion.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

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Know About The Letter Thorn


By the end of the 1600s, the letter “thorn” had disappeared from the English alphabet.  It sounded like “th” and looked a little like “y.” Having two letters that looked the same is a weak alphabet so thorn became the digraph “th”

Thorn is a useful example of how retaining old information without understanding how it came to be is unproductive and potentially dangerous.

“Ye Olde Cheese Shop” looks like a quaint idea to make the shop seem more reliable and long-lived.  It is of course just Middle English.  The Y is in fact thorn and the name sounds like “The Olde Cheese Shop.”  Nothing special.  A bit pretentious even.

We must be very careful about old ideas and old experience. Some of them are obsolete and not only fail to work, but sometimes harm.  Thorn is a bit innocuous, but not everything else is.

There is tendency to value experience as more valuable than other acquired learning but, unexamined, it is not.  J. Paul Getty summed it up years ago.

“In times of great change, experience will be your worst enemy.”

Sometimes experience is in the form of maxims or heuristics.  Sort of a condensed idea.  Not all remain true.  Some are conditionally true. Others are valuable.  You must challenge old wisdom.  Try to see the context within which the idea arose.

A young couple are preparing their first roast beef dinner. The new bride takes the roast cuts an inch off the end, puts the remainder in the roasting pan with the slice at the side and prepares it for the oven. The new husband asks, “Why do you cut the end off the roast?” New wife replies that her mother does it and that is how she learned.

On next visiting mother, son-in-law asks about the roast trimming. Her reply is that yes she always does it that way and her mother taught her that way.

A visit to grandmother clarifies everything. “Yes I used to do that. When we first came here from the old country, I had only a small roasting pan and the neighborhood butcher was a stubborn old guy who would only make roasts one size. That size was about an inch too long for my pan so I cut the end off.”

People are generally pretty good at killing off obsolete products and some legacy systems. Sometimes though, procedures and thought processes survive.

Wrong thinking is usually harmful.  Be critical of old or received wisdom.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  don@moneyfyi.com  866-285-7772

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