If you do everything right, can you get a bad answer? Sadly yes. On the other side of the coin, you can do everything wrong and get a good answer once in a while.
This is asymmetry of result. The outcomes are not absolutely connected to the inputs and the method of processing. People should condition their expectations to recognize this.
Here are some helpful pointers:
- You did not do everything right. You could not have known everything.
- The future everything will be different from the current and past everything. Your experience might not matter. Could even hurt you.
- Not everyone who knows a lot of things assesses the weighting and the interaction of parts the same way. Your weighting might be inadequate.
- Even if you know all the parts, the order of their application might matter.
People expect their plans to work like a pistol round fired at a target 25 feet away. Straight, very narrow trajectory. If it misses, it is because of preexisting condition failures. The shooter did it wrong, the bullet was substandard, somebody moved the target. The idea that if everything is done correctly the result is determined is wrong. Initial conditions and iniial methods do not necessarily produce success. Life is more chaotic than that.
Life planning should be like the way a smart bomb works. Start someplace reasonable and correct as you go.
A smart bomb’s trajectory is more like a cone. You only need to be able to do one thing. Throw it in “the basket.” The bomb will miss if the pilot does not drop it into the miles wide opening of the cone. If the pilot drops outside, the bomb’s corrective controls cannot get back into the space that will ultimately hit the target. The end is very precise because of an adequate beginning and many adjustments along the way.
Financial plans should be like that. Treat variability, previously unknown conditions, personal change, and some initial error as the norm. Try to get the plan onto a trajectory that has a chance of working and adjust as you go.
Consider the 3Rs. Record performance, review performance by comparison to your initial assessment of reality, and revise as necessary. If you do that, your start can be imprecise. Some saving or debt reduction is good enough. You can change as your income changes, as you come to understand investment markets and as your lifestyle changes. Today will turn out to be unlike most of the future.
People fail if they compare to their initial expectations, discover a difference and think, I am wrong. I must change what I am doing.
If those people had compared their result with what the world could reasonably offer, given their personal characteristics like risk aversion, expertise and capital, they would prosper. Failure arises when comparison is unreasonable and leads to destructive action.
Your friends might do better, but without a careful consideration of the inputs, you have no way to know what you should have done. They might have just been lucky and that evens out. People have a tendency to compare their current year to the personal best of others. That always fails. In fact almost every external comparison fails. You can’t know enough context.
It is okay to compare to your expectations with a view to using that information to alter performance or to make expectations more realistic. That is what the 3Rs do. Like the smart bomb.
Recognize that if you have the ability to change performance in flight, you need not be right in the beginning.
You must start, though.
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