In March 2009, I wrote about a television show called Man vs. Wild and the similarities I found between the show’s star Bear Gryllis’ use of survival skills in the wilderness and the approach I think makes sense in one’s financial planning. We all have our favorite guilty pleasure tv and mine must veer towards things I don’t do; because I now find myself looking for new episodes of Naked and Afraid on the Discovery Channel. In this show, two people are dropped into the wilderness and expected to use basic survival skills to survive for 21 days. Oh yeah…..and they’re naked.
When I think about the show’s concept, I see fundamental similarities with the challenge people encounter in the wild and their financial planning and the choices they make in how to survive. In Naked and Afraid, after the new partners are provided a map and one tool, they follow the same basic steps: build a fire, find drinkable water, build or find a shelter, and last, find food. They can be in the Amazon, the South Pacific or Africa and the basics are the same.
In early 2009, we were in a time when many felt they were Naked and Afraid when it came to their financial situation. I wrote that we had to stop and take time to orient ourselves to where we were and what was happening.
After the first quarter of 2014, we find ourselves in a different environment. It doesn’t feel like a five star resort…..but it doesn’t seem like the wild Amazon either. The equity markets have moved upward in strong fashion since 2009 but other issues warn us not be overly optimistic. We have high asset prices, weak economic growth, unprecedented monetary stimulus, compressed yields, global imbalances and unrest, and more.
So with the economy a bit better, we feel like we have drinkable water and with investment account balances recovered we think we have a fire built. But many are worried about that 2009 journey and if something negative turns up, they will be…well….naked and afraid!
My advice is the following: You can never know with certainty (or for certain) what exactly is going to happen with the economy, the markets, or world geopolitics. We can develop possible scenarios and ways of preparing for them, but we can’t know for sure.
What we need do is clarify (or re-clarify) what resources we have available and where it is we want to go. Knowing your personal destination and what financial resources you have to travel there are far more important over time than Russia in Crimea, a Tech sell off, or change in the Federal Reserve Chairman.
As a Financial Planner, this is what I will continually do; understand personal objectives, clarify your personal resources, and match them in the environment around us to get you where you are personally headed.
I will not have you buy or sell investments; start or stop investing; or make any financial decisions based on expectations born from current news headlines. I won’t avoid paying attention, but sometimes not acting is the correct action.
A disciplined approach to financial planning is much like the aforementioned survival skills. Working through the steps thoroughly, and in the right order, provides the best chance of realizing your goals.
You may survive by winging it, but the odds increase dramatically if you make sound assumptions. You should know the premises you are working from, and your strategy and resources should align with them..
You do not want to turn unavoidable setbacks into unrecoverable ones. So to that point, you should make changes to your portfolio when your personal circumstances change, not in reaction to market fluctuations and rumors of such.
From the start you have the comfort of knowing the process is going to assure your safety. If the terrain changes in the middle of the journey, you adapt. This approach, as we are reminded by those who succeed during Naked and Afraid is better than doing nothing or changing your mind every time you encounter a new piece of information. The disciplined process sustains you.
Actions in risk management, income planning, estate planning and the other related dimensions of your financial situation depend similarly on; what you have in your knapsack at the landing point, who else is in your party; your skills in shelter construction and fire starting, and the time you can give to each.
Because the financial environment, like the wilderness, has changing conditions and many unknowns, you have limited control. But if you make sound assumptions about the territory you’re in, know your destination, and use the skills and resources at your disposal, you improve the likelihood of safe arrival, limiting risk and avoiding stress along the way.