Financial Planning and the Fear of Flying
The Fear of Flying
The fear of flying is very badly named. If you listen to people who have this fear what they really have is a fear of crashing.
Interestingly the cure of this fear is not to be found in quoting endless statistics to the fearful, telling them how safe flying is; the cure typically comes from a total readjustment of their thinking about the experience.
Likewise smokers looking to give up their habit tend not to be persuaded by the bare facts; most smokers will continue to smoke knowing that smoking is bad for them. Logically this makes no sense. You can produce stat after stat evidencing how bad smoking is to the smoker’s health, to their wallet, to their social life and so on, but smokers continue to smoke.
When do they stop? More often than not, when they adjust their thinking.
It’s not the experience that counts, it is the way the experience is thought about. That is what makes the difference.
How does this relate to Financial Planning?
That is why two people investing money can have very different reactions to adverse market conditions. When investments are falling in value, the reality may be broadly the same for two similar positioned investors, but the way they deal with this may be very different. And this reaction will be down to how they think about what is happening.
Financial Planning is often misunderstood as solely an exercise in deciding what investments to use, how much should be put and where. The perception is one of Financial Planning as a purely mechanical process.
True and proper Financial Planning is much more than this, it is a way of managing money which not only produces a successful working process, but also provides the investor with a way of thinking about their finances and investments. It is an integration of the best methods with the best thinking.
For example, it encourages investors to become comfortable with market fluctuations. Markets and assets which have the best prospect of achieving excellent long term returns will move up and down, sometimes in quite significant ways.
Investors have to accept this and work with it. This means being comfortable with periods of time when investments are going down in value. Financial Planning aims to provide a foundation which enables investors to think differently about such periods, not worry about them, not to overact and certainly not to lose sleep.
If you invest into something and it forces you to have sleepless nights, you have either made a bad investment decision in the first place or you are thinking wrongly about it and need to adjust your thinking.
When we go through the Financial Planning process with our clients we diligently try to deal with both these things. Clearly, we aim to ensure that the right plans, investments and funds are being used. Secondly, we work with our clients to manage their expectation that there will always be (in properly functioning markets) ups and downs, periods of ‘difficulty’ and that these are to be expected.
Stockmarkets do fluctuate and are volatile, that is their normal behaviour. This represents the nature of companies in a cyclical economy. A successful investor will work with this and accept this.
Financial Planning and the Fear of Flying
The fear of flying is irrational, but it exists for millions of people because their natural survival instinct takes hold. The fact this same fear doesn’t apply to the car journey to the airport highlights how the fear is inconsistent with the reality of the dangers involved. It is the way that individuals think about each of their journeys which creates the fear, or lack of it.
Likewise, the fears people have with their finances are born out of the same survival needs. No-one wants to build up savings and then lose the lot through bad investment. No-one retiring wants to run out of money before they die, or run short for that matter. No-one wants to face healthcare costs and be unable to afford them.
However, most of the time these types of fears are unfounded. What an individual fears may happen will not happen and is easily managed or avoided. Financial Planning is a method of managing personal finances, which is just as much about dealing with the thinking as it is about the doing.
Individuals who engage in authentic Financial Planning will experience a process which makes sure such worries are addressed, both in reality and in the mind. This allows for and leads to better decision making, with more appropriate financial plans being pursued.
Getting the thinking ‘spot on’ – it could be argued – is just as important as what companies to use, what funds to select, how much to invest and when.
Penguin Wealth are specialist financial planners, here to help you if you are looking to review your personal, or business finances. If you would like to speak with a member of our advice team, get in touch here.