A big problem is folks’ inability to research a problem completely before leaping to a financial conclusion. I work with engineers, mathematicians and the like, they can generally be described as “problem solvers”. They enjoy showing that they can get things done. Unfortunately, many times they jump to the wrong solution because they have not really listened long enough to figured out what the problem was in the first place. They have not taken the time to listen first and then synthesize a response after they have heard all the facts.
Let’s take a good financial problem, and see what financial conclusions you jump to?
Say you have a friend (Harvey) who is 52 years old. He has realized that thanks to bad planning on his part he doesn’t have enough money to retire. Harvey was hoping to have $3 million by the time he retired, and he hasn’t even cracked the $1 million dollar mark in his RRSPs, and other investments.
A quick solution that I heard one friend blurt out was the following:
“Harvey, you are going to have to take more risks with your investments to try to compensate for the slow growth you are getting currently”
It sounds like a possible answer, until you think about risk. Taking the existing moneys that you have and putting them in a more risky portfolio just means you could end up much farther behind. Risk must always be considered in financial problems.
Another comment was that Harvey was going to have to “beat the market” and of course the commenter knew of an advisor who has great success achieving this holy grail of investing. My guess is that this is where lots of investors end up, in the Beat the Market trap. After 30 years I have seen many folks who thought they were beating the market. Rarely were they correct.
Finally, I mentioned to Harvey that another solution might be to start saving more money now, paying down debt faster and maybe altering his lifestyle so that he could have a larger retirement fund later. If neither was possible, then simply abandon the idea of retiring early, and just stay diligent in your saving plan.
Jump to Financial Conclusions?
Which idea makes more sense? Oh and yes the Jump to Conclusions title is a reference to one of my favourite movies Office Space.