The USC Lady Gamecocks basketball team was upset recently in the NCAA “Sweet 16”. Everyone anticipated a return trip to the Final Four and a shot at the National Championship. This time, however, hard work didn’t equate into a good outcome. Often, other variables come into play. The very same thing can happen in your financial life.
There are several reasons that working hard does not necessarily equal a good result. These include:
- Emotions Get in the Way – Financial decisions are ultimately emotional, as the outcomes of these decisions encompass your hopes and dreams. Many clients justify these emotional decisions with the logical and rational parts of the brain, but emotions trigger the decisions. All of the traditional financial services firms understand this very clearly. That is why their advertisements and slogans focus on sandy beaches and fun times with family. They know those emotional aspects outweigh every other consideration.
- Little or No Generational Guidance – In almost every area of your life, parents and grandparents can provide meaningful and invaluable guidance…investing may be an exception. Before the late 1970’s, most individuals had limited personal investments since retirement funding consisted of defined benefit pensions. With the advent of 401-k plans, IRA’s and other retirement oriented vehicles, investing has become much more widespread. For most people over age 55 or so, parents and grandparents likely had little first hand investing experience.
- Buying the Bull – Most individual investors have, at best, a limited understanding of the opaqueness of the retail investment sales system. Investment products are designed to be complex and confusing so that the “financial consultants” can help guide you towards the higher sales commission “solutions”.
- Unrealistic Expectations regarding both the Savings/Returns Needed for Goals – Having realistic expectations for the pool of capital you need to preserve your lifestyle in retirement is a necessity. It is common for us to see clients dramatically underestimate how much they need to save for retirement and then overestimate how far those dollars will stretch. Managing these expectations and moving these towards reality is a large part of our work with clients.
Yes, hard work helps but there is no guarantee that alone will provide the outcome you desire. Keeping emotions in check, understanding the role of fiduciary advice (as opposed to investment product sales), and maintaining realistic expectations are key. Ready to break through your inertia? Ready for a real conversation?