There are a lot of people that do not work with a financial advisor. They are more comfortable as do-it-yourselfer's. Many people view decisions on financial matters as simply requiring common sense. I understand that idea, we use common sense to make many decisions. Of course, one might ask what constitutes common sense on financial matters. There are a number of commonly accepted common sense maxim's that can guide us. Spend less than we earn. Save for a rainy day. Buy low, sell high. Avoid credit card debt. Invest for the long term. Diversify investments.
The challenge I see with common sense maxims is that they are so superficial. In fact, we all need to apply far more reasoning to the myriad of financial decisions we face. Too often we don't. And that's what concerns me. What substitutes for the effort in understanding and reasoning may often be electing a simpler decision choice. Examples might be just doing what we think other people do, taking off the cuff advice from friends or family, or often just doing nothing. While these could result in good decisions, it seems to me that we are really just hoping for the best. Not exactly a good strategy for success.
Here's an example of what I observe. Recently I was talking with a person who explained they were approaching their full retirement age for social security, age 66 for this person. This person related that when discussing when to begin taking social security benefits with a friend, that friend enthusiastically counseled that is it optimal to begin social security as early as possible, age 62. When I engaged this person in further discussion of this topic, it was clear that person was well aware that amount of the benefit would be lesser or more depending on at what age the benefits began. Yet, their thinking had not progressed to actually consider what the full financial impact would be over the short and long term. I can report that the conservation proved very useful for this person as I assisted them in reasoning out the variables in this matter.
The big difference between my guidance and the friends advice is that I wasn't attempting to apply my idea of what I think is the right decision. Rather, I was guiding the person through the thinking process that mattered for them. There are many financial decisions that matter in our lives. It makes common sense to get advice from someone that will help you reason through these decisions.
The challenge I see with common sense maxims is that they are so superficial. In fact, we all need to apply far more reasoning to the myriad of financial decisions we face. Too often we don't. And that's what concerns me. What substitutes for the effort in understanding and reasoning may often be electing a simpler decision choice. Examples might be just doing what we think other people do, taking off the cuff advice from friends or family, or often just doing nothing. While these could result in good decisions, it seems to me that we are really just hoping for the best. Not exactly a good strategy for success.
Here's an example of what I observe. Recently I was talking with a person who explained they were approaching their full retirement age for social security, age 66 for this person. This person related that when discussing when to begin taking social security benefits with a friend, that friend enthusiastically counseled that is it optimal to begin social security as early as possible, age 62. When I engaged this person in further discussion of this topic, it was clear that person was well aware that amount of the benefit would be lesser or more depending on at what age the benefits began. Yet, their thinking had not progressed to actually consider what the full financial impact would be over the short and long term. I can report that the conservation proved very useful for this person as I assisted them in reasoning out the variables in this matter.
The big difference between my guidance and the friends advice is that I wasn't attempting to apply my idea of what I think is the right decision. Rather, I was guiding the person through the thinking process that mattered for them. There are many financial decisions that matter in our lives. It makes common sense to get advice from someone that will help you reason through these decisions.
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