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Talking To Myself - Garbage in Plans


I’ve been talking to myself a bit more than usual. With everything going on, I’m confident I’m not along with this habit.

 

Question – Life sure has changed and there’s a lot going on. What are you thinking?

 

Answer – Life has changed? Really? No one has noticed, Captain Obvious!

 

Q – Woah, slow down there. I’m usually the one a little bit grumpier.

 

A – Apologies. I think my lack of a haircut is starting to tickle my brain. Let’s start over.

 

Q – Fair enough. So, what are you thinking?

 

A – A lot, but I expect so is everyone.  The one thing I have stuck in my head is “I’m glad I’ve always pulled garbage into my financial plans.”

 

Q – Garbage? Um, come again?

 

A – Yeah, I probably should clarify. Most financial planning software pulls in historical returns for investment portfolios.

 

Q – Sure. We’ve all seen it and the warning of “past performance does not guarantee future results.” 

 

A – Right. The problem is until the last few months we had been in the longest bull market in history.

 

Q – Um, not sure how I see that as a problem.

 

A – True. The issue is most financial planning software only pulls in the most recent ten-years worth of data.

 

Q – What am I missing?

 

A – Well, if your advisor is average and maybe not so forward-thinking, his software may have been missing the whole picture.  

 

Q – You always have to slip your firm name in. Get to the point!

 

A – Alright, Mr. Grumpy. Let’s say your advisor updated your financial plan anytime before March of this year. And his average software only pulled in historical investment data for the most recent 10-years. That data is going to only look positive because what is missing?

 

Q – Market corrections!

 

A – Exactly. We haven’t had a bad market since the Great Recession, which ended in early 2009. So, the average advisor’s financial planning software has only been looking at literally the longest bull market in history.

 

Q – Dang! But what is the garbage you reference.

 

A – I’ve always made sure my financial planning software pulled in bad data. For example, an old financial planning program I used to use I had to manually go in there to expand my investment history to include all of the Great Recession. Lots of fake advisors were happy to exclude that because no one wants to share bad news.

 

Q – So, you want some sort of congratulations for pulling in bad data?

 

A – Not at all. I wish I was wrong, but history tells me I wouldn’t be.

 

Q – What are you trying to tell me then?

 

A – Take a look at your financial plan and see if you can see the time period for the investment history.

 

Q – Isn’t that what we pay you guys for?

 

A – Fair enough. Pick up the phone or send an email to your advisor asking for the time period information. All you need to know is if it pulls in bad data. If not, well…

 

Q – What do you mean – “well…?”

 

A – Yeah, you might be dealing with we refer to in this industry as “fake financial advisors.”

 

Q – Ughh. Dare I ask what that is?

 

A – That’s for another conversation.