Integrated Financial Training: Westchester NY

Empowering you to Manage your Money and your Happiness



Contemporary Planning Standards

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If we are going to use analytical models, we need to understand their strengths and weaknesses so we can properly interpret the results. We can then make sound decisions. For a financial planning process, for example, these models reflect the totality of your earnings, consumption and investing activities throughout your entire life. Seemingly small decisions over long periods of time can have a far greater impact that most would suspect, so time spent here can be useful.

I remember working with senior managers of a number of banks who described their planning processes (known as the asset-liability management committee). They not only evaluated the current risks they faced, but looked at all the different strategies they intended to employ and considered how their net income and risk profile would change in each scenario over time. The process was quite complex, and by the end they produced an extensive plan. But whenever you asked them why they took so much time to plan, they would all say it had nothing to do with the final plan they produced. Instead, it was always about the process.

Think about it this way - if you were sitting in the driver's seat of a car and you did not know where the steering wheel or breaks were, you would have a serious problem. If you knew where they were but did not know how sensitive the controls were, you would still have a large problem. The point of planning is to understand your environment intuitively so you can react in real time to events that occur and know your reactions are tuned to the type of results you want.

Individuals can learn a great deal about planning from these sorts of institutions. In our situation, there are a number of moving parts that can significantly affect us. Many online free tools will show you whether you have enough money to retire or not. But to manage our affairs coherently we need to go beyond the first nugget of information, because the only thing we can know for sure is our situation will not turn out precisely the same way that plan predicts. How will our income change, what about our assumptions of investment returns and inflation? We need to understand what types of scenarios can evolve and how sensitive our living standard is to these changes.

Early stage tools might not offer opportunities to test these changes and may only tell you whether you have enough to retire. Next generation tools may give you a probability for the chances you will have enough to retire. But they don't discriminate whether you missed by $1 or are 100% wiped out. Skipping down to Monte Carlo simulations, which provide a better assessment than just expected assets remaining to a certain probability, unfortunately they are based upon some statistical assumptions that are widely known to underestimate genuine risk. Unfortunately the financial industry has not completely solved the problems of oversimplification in underlying assumptions that can lead to some fairly bad decisions, although improvements are certainly in the works for institutional clients.


When using complex analysis, wisedom pays. Use intuitive, natural methods to achieve your goal.

A proper process is designed to take the best available resources and blend them together in an intuitive, common sense manner to avoid the problem of over-thinking, which can lead to serious blunders. It should not be overly complex to administer so it can provide substantial benefit with minimal effort. Monte Carlo simulation is helpful, but actual historical scenarios test the realism of these projections. Testing the sensitivity to different income levels allows people to make informed decisions about lifestyle. By testing the impact of asset allocations that both differ from and closely match your future expenses, you can measure the impact on your lifestyle. Inflation shocks for example can affect real earnings and real investment returns, significantly impacting your situation. The ultimate test is what you will be able to live on, not a rate of return. After testing the potential negatives, look for opportunities to improve your situation and rerun these same tests to show you the improvement. The outgrowth of this review provides a good feel for the sensitivity of your finances to any major changes, so you will know how to insulate yourself from trouble and react confidently to surprises in real time. The differences between a robust process and a simplistic one can make a large difference in one's life.

Finally, our coaching process also focuses on techniques to improve our finances. We tend to get back from the world what we put out there. Sometimes this is explained as "you reap what you sow" or other times as "karmic management." Regardless of your particular view, when we all help the people around us to prosper, the tide for everyone tends to rise and we certainly benefit.

Knowing that our process, both financially and in terms of how we live our lives, is well thought out and designed to work, we can relax and focus on living our lives more fully. Even if we have yet to achieve our goals, knowing we are on the right track can bring a greater sense of peace.

Legal - The purpose of this site and all services offered are educational in nature and not to provide any investment advice, planning or recommendations of any securities. The purpose is to educate you to make your own financial decisions, or prepare you to evaluate your financial advisors with confidence so you can gain trust in the services they provide.





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