If you take even a casual look at advertisements for any type of financial product or service, the word “solutions” usually is prominent. What are we actually trying to solve? In many cases, we are trying to create certainty even though in nature certainty doesn’t really exist. Despite this, every day investors “pay up” for packaged investment products that promise certainty even if this outcome is outside the realm of the possible.
The uncertainty of exact future outcomes is our stock in trade. This forms the central core of financial life management…planning for the future when exactly how the future will unfold is unknown. We believe that long-term outcomes cannot be precisely engineered and therefore our efforts should be aimed at what we can control…inputs such as savings, time and behavior. Economists sometimes describe this type of uncertainty as “stochastic” (from the Greek “to aim”), something that can be analyzed but cannot be precisely predicted due to the presence of randomness. Because we crave “solutions”, however, financial product marketers manufacture investments that ignore this randomness.
The irony is most financial products do not “solve” financial life issues anyway. Generally, in the way they are sold, these products often move investors further away from their financial goals, not closer to them. A good way to combat product missteps is to acknowledge that investment returns are not predictable…by anyone. While many investors have, thankfully become more aware of the often high costs of packaged investment products, they are usually not as aware of the equally high costs attributed to constantly chasing solutions.
How much we save, the length of time these savings are invested and yes, our own behavior are the raw ingredients for solving financial issues. What we do versus what we should do in our routine financial decisions is the most important input that we can control. Tired of chasing false “solutions”? Ready for a real conversation?