Swedroe: ‘The One-Page Financial Plan’

April 13, 2015


He adds: “Irrational decisions and bad calls about money aren’t ‘failures’; they’re just what happens when emotional creatures have to make decisions about the future with limited information.”


The message is that even a well-trained financial advisor, acting on their own, can be prone to making mistakes with their money. And these are mistakes they would never make when giving advice to their clients. The difference is that, with a client’s assets, an advisor isn’t emotionally tied to the issues at hand.


For example, they don’t work for your employer, whose stock you want to load up on. Nor are they emotionally tied to a certain dream house, the one you just have to buy, nor that dream vacation you want to take.


The lack of an emotional tie is what allows them to help you make rational decisions. It’s why most of the financial advisors in my firm have another advisor as their financial coach—to make sure their decisions are being made rationally, based on facts and evidence, and not emotions.


Make A Plan. Stick To It.

Perhaps the most important lesson Richards imparts is that creating a financial plan, and accepting we cannot predict the markets (and no one else can either), is one of the best ways to give yourself something we all want more of. And it’s the most precious thing we have—time.


He related this story: “I have a friend who sat down and calculated how much time he no longer has to pore over financial statements each week. He was shocked to find a whopping four to six hours a week! And not only did he have more time, but leaving his investments alone, he found they were doing much better.”


And yes, academic research does show that the less frequently individuals check their financial statements, the better their returns. The reason is that they are less tempted to take action when inaction (adhering to the plan) is usually the better alternative.


Conditions For Success

I’m confident that if you read Richards’ book, and follow his prescriptions, you’ll be able to create a financial plan that’s truly aligned with your values. Such a plan will serve as a clear path forward to your goals. After that, the rest is up to you, because having a well-thought-out plan is only the necessary condition for success.


The sufficient condition is having the discipline to adhere to your plan. That’s the much harder part, because we’re all human and subject to making behavioral errors. And there are so many we can make. My 2002 book, “Rational Investing in Irrational Times,” covered 52 mistakes.


Nine years later, “Investment Mistakes Even Smart Investors Make and How to Avoid Them” was published, and it contained 77 mistakes. If I were to update it again, the list would be even longer!


This is why Richards emphasizes the need to behave, and to do so for a very long time in the face of many unexpected circumstances and likely several bear markets. And you’ll have to do it while most everyone else is losing their heads, thinking this time it’s somehow different. With that in mind, he concludes the book with strategies designed to help you stick with the plan, so that you don’t undo all the hard work you’ve accomplished with even one poor decision.


Morgan Housel, a columnist for The Wall Street Journal, said: “In a world where financial advice is (often purposely) complicated and filled with jargon, Carl distills what matters most into something that is easy and fun to read. The true measure of a brilliant book is whether the material is as relevant to an industry expert as it is to a layperson.”


As the author or co-author of 15 books on investing—including “The Only Guide You’ll Ever Need for the Right Financial Plan”—and the director of research for The BAM Alliance, I found the book just as relevant to me as I’m sure it will be to you.

Larry Swedroe is the director of research for the BAM Alliance, a community of more than 150 independent registered investment advisors throughout the country.



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