Prophesy Is Difficult

Prophesy is difficult and it is especially difficult with respect to the future. Planning however, is possible.

I found the desktop model crystal ball to be too cumbersome. Now when someone asks for my prediction of the future at lunch or a party, I am prepared. I have acquired a laptop crystal ball.

laptop crystal ball

Despite my new treasure, forecasting and predicting is essentially a fool’s game. When the results matter, we must not take a prediction as a certainty.

Planning requires forecasting and if that does not work, what is the point?

First of all, notice that plans are useless but planning is valuable.

The purpose of planning is to discover the range of variables that will produce an answer that is acceptable. As a byproduct, this produces a range of values that will not work. These are the more valuable.

Once you know the values that don’t work, you can be alert for their occurrence and can act sooner to amend your plan.

A good plan is always evolving. It is a bit like driving a car. If you drive 30 miles, you will make many small adjustment with the steering wheel as you move along. If you do not pay attention to the small adjustments needed, or do not know they are needed, there will eventually come a large and dangerous adjustment or a catastrophic crash. Better a series of small adjustments.

It is not enough to review your financial plan once every few years. It is also not enough to review it unless you know the essential underlying variables and the list of values that will harm it. Compare what is happening to what you have forecast to happen. Be alert. The news is in the variance.

Too frequent looking is also a problem. Keeping things in perspective is sometimes difficult, but a single warm day in January does not indicate the end of winter. Similarly a bad day in the market is not a sign of impending doom. At least, not all by itself.

Having a feel for how your plan relates to the real world is the goal. Once you have that, the adjustments are instinctive.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

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