The first fundamental to discuss for Financial Planning Fundamentals is Planning itself.
I like the quote credited to Dwight D. Eisenhower to describe planning: “Plans are worthless, but planning is everything.”
While interviewing for jobs, I would sometimes be asked, “Where do you see yourself in 5 years?” I eventually would answer, “When I look back at my life, at any point, if I was asked, in 5 years, what will I be doing, where will I be doing it, and with whom will I be doing it, I would have been wrong on 2 of those 3 every time. I’ve learned that working hard and being open to opportunities will lead me in the right directions.” I say that to say that Eisenhower’s quote rang true to me immediately. We do not know where the markets will be in 5 years, let alone 10 or 15. We do not know what we will value, or how much they will cost in 5 or 15 years. But by the continual process of planning, we able to review recent information in context of history, assess how that affects our plans, and proceed with our next steps of planning to make progress to understanding our goals, how our goals might change, and progress to those lifetime goals. And we’ll keep doing that, year in and year out.
There is another part of to the Eisenhower quote: “There is a very great distinction [between plans and planning] because when you are planning for an emergency you must start with this one thing: the very definition of ‘emergency’ is that it is unexpected, therefore it is not going to happen the way you are planning.”
World events that are large and important enough to affect the markets in the short-term are definitionally surprises, and usually unpleasant ones.
It is for this reason that, rather than avoiding talk about potential market downturns, I look to discuss and gameplan those situations. They are a matter of “when” there will be the next downturn rather than “if”, and I want to have thinking and planning prepared for when they do. Each downturn will look different, but the one characteristic they all share: while they are occurring, it does not look like things are going to turn out well. But they have. To date, there have now been 89 down markets since 1929…but there have been 90 up markets.
In short, the most important aspect of planning is that it gets you thinking about how the world may look, and help prepare you for the best actions for you to take as events unfold. Thanks for reading.