The Challenge of Expectations.
Nothing in life has more potential to create emotional frustration than the erroneous expectation that something will occur in the future. Take the word “perfect”. Has something ever been touted to you as being “perfect”, only later to be extremely disappointed? Personally, I limit the use of the word “perfect” to those fleeting moments in life that seem to occur only in the present.
The term “perfect” is often used in the context of investing. Manufactures of investment products, along with those marketing their products, will place an emphasis on historical performance. In the mind of the investor, this focus often creates expectations of being able to realize similar returns in the future.
I believe historical returns have their place in comparative analysis of comparing similar type of investments in order to understand how these investments performed under similar time frames and circumstances. However, historical returns are based on the past. When it comes to the future, I have yet to be convinced that anyone has the ability to consistently and accurately predict what will occur in one, three, five, or ten years. Therefore, my conclusion is that there is not any perfect investment approach or perfect product that will consistently meet or exceed erroneous expectations.
This leads me to my next point- establishing a high probability of a sustainable standard of living. Having a dual role as a professional coach and investment advisor representative, my core focus is squarely placed on the subjects of both sustainable personal change and standard of living, subjects that enhance the quality of life. To accomplish this goal, a realistic and conservative set of assumptions is required that have a high probability of achieving those set of assumptions. Let me also define sustainable standard of living as having the financial resources available to meet the demands of life, as needed. Simply put, having more money at the end of the month as opposed to more month at the end of your money.
At the very core of financial sustainability, the issue is how well funded is the household. For sources of income like social security, pensions and investible assets, how reliable are they in producing the overall income needed to cash flow future expenses?
This task of accurately defining and establishing a set off assumptions is critical to the goal of experiencing a life that is free from the effects of emotional uncertainty and anxiety created when we are faced with change that is often beyond our control.
It is very valuable to establish a set of pragmatic assumptions in the areas of annual fixed and discretionary spending, consistent sources of income, required rate of return, inflation, and taxes as well as the time period to be covered. For those who are seeking a life that is in alignment with what they value the most, what is the value of being financially secure to you?
