We’ve all had our share of hard questions, and enough of us have had to ask them on occasion as well. Why me is a question that seems to frequently escape my lips without much provocation. So what are the toughest questions financial planners have been getting in these last couple of years? Ron Lieber from the New York Times asked around, and came up with these five.
Why didn’t you see the GFC coming?
I can imagine this would be on your mind if you’d made some decisions based on a financial planner’s advice and things had gone pear-shaped. It’s a natural question to ask. Having said that, if you had a financial planner worth their salt, they would have warned you of the risks that you were taking and ensured that you knew that, in finance, there’s no such thing as a certainty.
One thing you should be looking for in a financial planner is someone who takes into account your risk tolerance and adjusts accordingly. You should also be on the lookout for someone who is upfront about the risks involved with each investment. If you have a financial planner who tends to be all positivity and refuses to countenance the possibility of risk, I would take pause.
Why did diversification fail?
This article, written just after the GFC, summarises the feeling at the time. Diversification is meant to be some form of protection, yet according to Lieber, most investments fell in tandem.
So is diversification dead? No, says the financial planning world. Diversification does not mitigate your risk in the short –term, but over a period of years. It’s designed to perform over a number of years. Not necessarily reassuring to those who saw their money plummet, but worth keeping in mind when you are preparing your assets for retirement.
Is there any point pretending I can control my money?
Well, yes, as you can control your savings rate, and curb your spending. You can understand the risks associated with each investment, and respond accordingly. You can never control the market, but to an extent you can control how exposed you are to the markets whims.
How do I know I’m not dealing with a crook
Sadly, personal finance gurus suggest there are no guarantees for crook-avoidance (pesky financial planners, always unwilling to categorically state anything). The only protecting you have is research and awareness. For instance, they suggest checking that your account balance is at the top of every statement so you will notice when money has gone astray. If you are old (or, like me, constantly distracted) think about asking someone on the ball to check your statement every month as well, just to be sure.
Do I have to change my life forever in light of the GFC?
According to financial planners, it all depends how you look at it. No, you won’t need to do anything irreversibly life-changing as a result of the GFC. Yes, maybe you’ll have to rethink your spending, or get creative with activities. Myabe it’s a perfect time to reevaluate whether the things you spend money on make you happy. If they don’t, then really The Hard Ask should be: what does?