Good financial planning is about exercising control over income, expenses and investments over time to achieve what you desire in life. \u00a0 Exercising control over those three areas pays off when you focus your efforts pulling levers that have an impact. While people seem to understand what the levers are that both matter and are under their control when it comes to income and expenses, they too often ignore or fail to understand what matters and what is controllable when it comes to investments.\u00a0 This failure too often leads to poor investment choices, risking all the hard work done in the other two areas.<\/p>\n
When it comes to income, you can choose your career path, choose how hard you work, choose how much time you dedicate to work. \u00a0While sometimes it may feel like you have no control at least you know what levers you can pull if you want to make changes.\u00a0 You can get a new job, relocate, try to get a promotion, etc.\u00a0 In the long run, almost everything can change if you really want it to.<\/p>\n
When it comes to controlling expenses, it’s the same. \u00a0While you may not be able to change some of your fixed expenses in the short term and some people just have a higher cost base than others due to where they live, the size of their family or personal spending preferences, again, at least you know what levers you can pull within reason to makes changes to your situation.\u00a0 In the long run, almost all costs are variable.<\/p>\n
When it comes to investing, however, people aren\u2019t as aware\u00a0and easily led astray.\u00a0 Fortunately there are only two things that both matter and are in your control. Those two things are 1) how much risk you take, 2) how much cost or fees you incur.<\/p>\n
But what about picking the right stocks?\u00a0 What about picking the fund manager that outperforms?\u00a0 While those things clearly matter with hindsight, they are very difficult to control for in advance and certainly not worth paying for.\u00a0 Overwhelming evidence suggests the only determinants of future investment returns are risk and cost.\u00a0 And by risk we mean the relative weighting of broad asset classes (eg. stocks versus bonds), not which individual stock bets or market timing calls you make.<\/p>\n
To serve your best interest, choose a mix of well diversified low cost investment funds that is suitable for your risk tolerance and financial situation.\u00a0 Other risks are costly and the evidence shows you won\u2019t be rewarded for taking them.\u00a0 You will of course encounter those offering\u00a0advice on how to beat the market or generate higher returns with less risk.\u00a0 Fortunately it is also within your control to ignore bad advice.<\/p>\n
What does it mean for good financial planning? It means focus on what you can control and what matters.\u00a0 If your life goals and desires mean you need more than you can achieve with your current income, expenses and investments, focus your time and energy on spending less or earning more.\u00a0 Don\u2019t be swayed by\u00a0charlatans who say they can solve your problems with superior investment returns.<\/p>\n
On the other hand, if you can already deliver what is important to you and what you desire with your existing income, expenses and a sensible and disciplined investment plan, congratulations, you\u2019re on track – just don\u2019t get greedy and risk what you have for what you don\u2019t need to make you happy.<\/p>\n
If you\u2019re not sure which group you fall into, it\u2019s worth doing the work to find out.<\/p>\n","protected":false},"excerpt":{"rendered":"
Good financial planning is about exercising control over income, expenses and investments over time to achieve what you desire in life. \u00a0 Exercising control over those three areas pays off when you focus your efforts pulling levers that have an impact. While people seem to understand what the levers are that both matter and are […]<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,17,19,7,12,15],"tags":[],"class_list":["post-380","post","type-post","status-publish","format-standard","hentry","category-all-posts","category-costs","category-financial-planning","category-graham-bodel-posts","category-passive-vs-active-investing","category-risk-and-return"],"_links":{"self":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/380","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/comments?post=380"}],"version-history":[{"count":2,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/380\/revisions"}],"predecessor-version":[{"id":382,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/380\/revisions\/382"}],"wp:attachment":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/media?parent=380"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/categories?post=380"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/tags?post=380"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}