The Problem – Straight answers about personal financial planning and investment management are difficult to find
In this article, The Skilled Investor summarizes some of the significant problems faced by ordinary individuals, when they attempt to plan their family finances. This is the first in a series of articles that will provide scientifically grounded decision rules that address these problems. Sign up for an RSS feed in the right hand column to stay tuned.
Even if they are intent upon doing better with their personal financial planning, many people are confused and frustrated about how to approach personal finance and investment planning.
To rise above the confusion, you must have a durable and scientifically grounded understanding of personal financial planning and investment management.
Very often, people do not have access to disinterested and reasonably priced advice and information. Financial advisors are expensive, whether or not you pay them directly. No advisor can work without compensation. If you do not pay your advisor directly, then the industry will. When the industry pays your advisor, your best interests may quickly fly out the window.
Most competent financial advisors prefer to focus their attention on the wealthy who can more easily afford their services.
People of more modest means often receive inferior ‘free’ services. Many find that these free financial planning services quickly focus on the sale of expensive and often inappropriate financial products.
An endless stream of books and articles flows with contradictory recommendations on ways to ‘beat-the-market.’ The various financial media chatter on and on about daily minutia regarding one company after another, but they provide little useful synthesis.
On-line financial information rarely has enough depth to be very helpful. Free on-line tools provided to individuals tend to be simple and superficial one-size-fits-all calculators. They are designed primarily to funnel ‘retail’ sales prospects into a website purchasing process. These tools provide little real insight for individuals who are trying to decide what to do for the long-term.
When individual investors attempt to make sensible decisions about purchasing financial and investment products and services, the potential for confusion is astonishing.
Uncertainties about investment value and risk give rise to substantial ongoing securities price volatility and sometimes to extreme outcomes. Any consumer product characterized by such great uncertainty and such wide fluctuations in potential value must necessarily cause substantial buyer confusion.
Current securities prices reflect the market’s fluctuating auction consensus about potential asset [...]