Most of us want some certainty in our planning. We want to know that this decision will turn out right, or that they will be able to achieve this or that goal.
The best investing happens when you, in fact, acknowledge that you can’t be certain, find a way to be okay with that, and invest. If you plan for a 30-year retirement from age 65 to 95 years, but live till age 114, how prepared can you be? Even worse, imagine how much more can happen if you are currently 35 years old and trying to make financial decisions that can impact the rest of your life.
Planning is knowing that the market will be wavy, will have a high standard deviation and the following questions are so relevant!
Do you want to get married? have a kid?
Do you want to buy a home? What will interest rates be in 5 years?
Will your company go IPO?
I don’t know. You don’t know. Nobody knows.
Now look at the events that happened in the last 5 years:
Did you expect your company's share to fall 25% as soon as you EXERCISED your option?
We keep craving for certainty, but don’t have it.
In the Lieu of Certainty, Manage Risks and Build Resilience.
If we can’t know what will happen, and we’re afraid that we won’t be prepared for whatever does happen, it strikes me that we need to make ourselves generally resilient, in the spirit of preparing us for…whatever.
Financial planning is a combination of managing risks, building resilience, and planning for opportunities.
How do you manage risks in your financial life?
Build a robust cash cushion. Save more than you think you need to.
. Get the right insurance policies: life, health, disability, auto, etc.
Draft your estate planning documents with a good lawyer
Get other legal documents drafted whenever you’re engaging in a big financial transaction.
Build Resilience Outside of Your Money.
We need to build on our relationships, education and skills, hobbies (creativity), network of friends, colleagues, relatives and build good health.
Pulling from my own work and through my work with clients, here are some ideas about non-financial ways to build resilience:
Meditate. Journal. Spend time in the forests looking for lions and tigers!
Friendships – school, College, etc. Pay attention to such gatherings!
Career – manage expectations
Physical health. Eat right. Move your body. Pump iron
Cognitive health. Do crossword puzzles and Wordle every day. For others of us, read books, take classes about interesting subjects, start learning a new language or plant a garden.
In addition to being good things in and of themselves, all these things are, conveniently, things you can control. You can’t control what interest rates are, what the climate does, what other people do, etc.
After all this we rely (and learn to rely) on our ability to Figure it Out as we embark on the journey as the journey unfolds.
Uncertainty is scary and unpleasant and unavoidable.