Have you seen Fidelity‘s commercials with the green line:
[youtube=http://www.youtube.com/watch?v=U7atn5Zj5hY&feature=related]
Isn’t it that easy?
Have you ever sat down with a financial planner that drew a straight line like the one in Fidelity’s commercial? Isn’t that what they do when they print out those stacks upon stacks of papers showing an ‘analysis’ of where you will be in your future? They draw you a nice straight line from the point you are today to the point you will be in the future.
Did you ever ask why the line is so straight? The financial planner assumes. They make assumptions about taxes, rate of return, inflation, time frame, asset allocation, salary increases, money needs, life expectancy, I think you get the picture. Do we know what any of these things will be tomorrow, none the less in 30, 40 or 50 years from now?
Did you ask about the assumptions? They will probably go on a schpeel about how they build long lasting relationships and need to do annual reviews to make adjustments to your plan. What does that mean? Does that mean we need to change things every year? That doesn’t sound like fun.
Did you ask about costs to make changes? This is a great way to differentiate between a bad, good or great financial planner. This is where it becomes important to understand how your financial planner gets compensated. It could be expensive to make changes every year. Or even worse, you might not realize how expensive it is.
Maybe the funniest part to me is that when I went to Fidelity’s website their green line showed up on the left in an advertisement for “Income Protection”. When I clicked on this I was brought to a MetLife variable annuity that offered a Fidelity fund of fund with a Guaranteed Withdrawal Benefit, that’s it. A bare-bones insurance product with a 1.90% annual expense ratio. In Fidelity’s defense this advertisement did rotate on my next visit.
We all love guarantees so here’s mine: Your financial plan, or your straight green line, are guaranteed not to happen. Your assumptions will change. Your future will change. You cannot predict it, you can only hope to prepare for it. Do you think they could draw you a jagged line? Maybe an array of points? Oh that’s why they came up with Monte Carlo simulations. They still couldn’t predict 2008 thought huh? What are we left to do?
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Maybe they should draw an pathway of probability. You’ve seen them before during hurricane season. As time progresses, the certainty of the hurricanes path decreases, resulting in an expanding probability of paths.
Meteorologists make assumptions too and they are usually right. But sometimes they are wrong when it really matters. Stay flexible, be open to change, and the weather won’t seem so bad.
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