Disappointment is a powerful force. It leads to decisions that change life. Usually not for the better. There is a reason people should be careful with disappointment.
Disappointment is two-sided. It relies on both observed outcomes and expectations. It presents when these do not coincide. Planners are usually capable of measuring outcomes, but many are careless with helping set expectations. Perhaps because expectations often are emotional more than rational.
Suppose I decide that my life plan will work perfectly if I earn 9% on my investments. That’s exciting. 9% becomes by goal, standard and expectation. After several years, long enough to see a couple of cycles, I am earning 8%. I am disappointed and decide there is something wrong with my implementation. I change things to recover my implied loss. To catch up.
In the same period my brother earns the same 8%, but he expected just 7%. We both have the same outcome, but one of us is disappointed and the other thrilled. Why?
There are no objective standards you can apply to future performance. 9% did not become real because I wanted it. So clearly, my failure is on the expectation side and not on the outcome side.
Change is usually a problem for people, so carefully establishing expectations is an important part of planning. If 8% was good performance, I will be wrong to change because it was not 9%.
Advisors are regularly blamed for this kind of shortfall. An advisor has an important role to play in helping people hold reasonable expectations and many do not do that. Failure to spend time on education and objective reality will cause many problems later. People who are their own advisor have a serious problem with this scenario. They have no guide, no conscience and no voice of reason.
No one likes unhappy clients and especially not when performance has been good. Financial success includes more than investment statistics and techniques. Conditioning emotions is a key part.
People who do their own emotion management will tend to do worse than they could. Everyone needs a Yoda.
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. firstname.lastname@example.org 866-285-7772