I had an interesting conversation with a man named Jeff Snider last week. He is an asset manager. He and I both pondered the state of our economy and the fact that, despite the fact that the majority of American financial advisors are using computer programs modeled after Nobel prize winning theories, American’s have lost a decade in the stock market. What about all of the arguments for diversification and asset allocation? What about risk reduction? What about modern portfolio theory? What about all the statistical analysis and projections?
All bunk, it seems.
Jeff shared a significant opinion with me: That financial advisers started using these computer modeling systems to lend creedence to their own opinions, when their own expertise and analysis was – perhaps – inadequate. Computer programs based on science (statistics, pretty much an attempt to identify patterns in markets based on historical data) seem more….objective…clever…dispassionate….whatever the reason, the idea took hold. Pretty soon everybody was using some system (in fact, in our industry, it’s often one of the first questions asked of a colleague; “What system do you use?”). But, as we have seen in The Great Recession, all of this modeling didn’t save anybody from the financial rollercoaster ride. (As a matter of fact, I’m still waiting for my car to climb the next big hill of the ride but I’d settle for a curvy small one right now.)
So, where does that leave you as a consumer? I wish I knew. It’s funny, most personal finance matters are very fundamental and basic (isn’t there a quote about common sense not being all that common?) and yet managing your finances in the 21st century (I just got a flashback to Daffy Duck as “Duck Dodgers in the 21st centurrryyyyy”. Sorry.) is anything but basic. And who has the time, let alone inclination, to learn about and understand all the moving parts that represent a financial picture? This is where a financial planner earns her/his stripes, I think.
It’s not about what the computer says, it’s about developing a relationship with someone who can help you foster an awareness of, stewardship over, and peace with your finances. For me, it’s isn’t about what products you buy or not buy. Maybe, just maybe, so many financial advisers have not yet drawn from their well-spring of wisdom to counsel their clients and, instead, rely on a computer to communicate what should happen and why. Hmm…I think someone moved their cheese. Mmmm… I love cheese.
Photos courtesy of ClipArt.