Why Long Term Financial Planning Sucks

Long term planning lulls one to believe that the future is under control. Many of us meet fast talking financial salesmen (women?) and feel smug when we buy some investment cum insurance policy or unit linked insurance plans etc. Even a house or the index for that matter bought for the purposes of holding on to 10+ years makes us feel confident that we have secured our future. A book that I really like doesn’t think so. Its called The Zurich Axioms (by Max Gunther) and I like picking it up and reading a small chapter or two on and off, repeatedly. The fable of the ant and the grasshopper is turned on its head in the book:

The dour and practical ant works all summer long in anticipation of the winter ahead,while the planless grasshopper just sits around singing in the sun. In the end, of course, the poor grasshopper has to come around, hat in hand, to beg for food, while the ant has the satisfaction of saying, “Ha, ha, I told you so.”

In real life, however, it is more often the ant who gets himself fumigated or has his nest torn up by a bulldozer. That’s what comes of having roots, and roots come partly from long-range plans. The grasshopper, lighter on his feet, just hops out of the way.

You may have visibility for probably a week ahead (unless black swans fly over your head). If you are really gifted, maybe you can portend the events to come a month ahead. What about six months? Or a year? The visibility dims considerably, but you’d still beable to reasonably predict where you will be in your personal and professional life a year or two ahead. I can bet that you can’t predict where the markets will be a year or two ahead with the same level of confidence. Even on personal/professional matters, a period of five years  itself starts getting quite blurred to predict into, especially if you are a relatively young person who has just started his career and family. If you older, then yes, maybe you can see five years ahead. But then long term financial planning is done by young ‘uns, right? And wait, we just got to five years! What about ten years? Twenty years?

You just can’t see through the fog of time. Remember that – you just can’t see through the fog of time.

The advise: don’t try to make really long range plans or let others make them for you. Instead, be light on your feet, like the grasshopper. React to events as they unfold around you, all in the present. When you see opportunities, go for them. If you see some danger coming your way, just hop away and come back when the trouble has rolled over.

The only long term plan you need, as far as your wealth and finances is concerned, is to have a sincere intention to get rich. The ‘how’ will differ from person to person – do try to discover it, but do so in the now and operation in today’s moment with a less of a “buy and forget it” kind of an attitude. It may work for Peter Lynch or Warren Buffet – that strategy may really suck in your case.