moneyFYI
Financial Freedom Is Merely Organized Common Sense
Do Computers Help In Financial Planning?
Probably “Yes” but not until later in the proceedings. Computers are especially good at certain aspects of financial planning. For example, they can make good graphs, thus helping communicate complicated ideas. They can recalculate quickly when you change an input variable like time until retirement or average rate of return or the tax structure or spending in retirement. All useful! But those things are unnecessary early on.
What they cannot do is make the adviser and the client think correctly about what it is that they are trying to do. They cannot even help people find out if the client and the adviser are seeking the same goal. That can be a problem. They do not know your resources, your time frame or the people who are involved. To put it simply, they are clueless until you instruct them. Instructing them is not a simple task
People must know what they are tying to accomplish before they seek a way to get it. They need to know about resources and time and risk and reasonable expectations and more. Computers don’t help much with that. Sadly, some advisers don’t help either.
If you start out with the action steps you will be defeated. You cannot reach Chicago at noon on Tuesday by driving randomly from Toronto leaving on Sunday. I suppose you might, but if you did not know where Chicago was, you would need to be rather lucky.
Besides an airplane might have suited your needs better. Tools matter but they don’t matter as much as defining the problem matters.
If you use computers to find options, to assess potential outcomes, to put variables and their effects in context, then they are your friend.
Computers are tools and don’t you forget it. They help you solve problems that you define. They do not solve any problem that you cannot tell them about. It is like hunting. Your dog is a help but when it comes time to shoot, you don’t give the gun to the dog.
If you use computers to prove the answer to an unknown or incomplete problem, then they will merely speed up the mess. And, they are not especially good at tiding up afterwards.
A final warning. Computers are very good at precision. They don’t care if they work with 7.276% or 7%. You however, are not good at precision. You don’t think the same way. Most people would rather know that if they get around 7% on the savings they will allocate, then they can retire at a certain time with a certain income. They know that they will adjust if the yield turns out a bit differently. The computer could show them what happens at 6% or 8% or even 43%.
Most clients would only understand what the difference is in terms of their lifestyle. They do not relate well or interpret well changes in rates. The computer helps them understand the meaning.
Use computers sparingly until the purpose, the options and the tools are clear
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@moneyfyi.com | Twitter @DonShaughnessy | Follow by email at moneyFYI
moneyFYI 