*The Living Balance Sheet

*The Living Balance Sheet

How accurate is financial forecasting?  Many financial planners use both a past and future forecasting to design a financial plan for clients.  As a matter of fact, Monte Carlo simulations (computerized simulations designed to model various outcomes and risks) are run to supposedly add credibility to the financial plan outcome.  However, why do you need to forecast future results which may or may not happen?  Perhaps this allows people to sleep better at night? 
Life happens.  Therefore, why not just keep a personal balance sheet which is easily updated automatically from your existing checking and investment accounts?  These online accounts are very secure and can chart your progress 24 hours a day.  I use Mint (A Quicken Product) which recently was voted best personal financial service software by PC Magazine for 2017—and it is free.  Sure, it takes some time to get all your accounts set up but you will soon find out all this work is well worth the effort.   
Financial planning is evolving to include alternative investments into an already mixed portfolio for added diversification and to limit the total exposure to a stock and bond only investment portfolio.  In addition, alternative investments can offer increased yields which will propel your overall retirement investments.  Believe it or not, some of the most sophisticated financial planning software packages do a poor job including alternative investments into its mix of investments.  Keep life simple, just track your daily progress and set realistic goals for your financial future.   
As always, let me know if I can help
Gerald House
The Contrarian Investor
Prosperity Economics Advisor

* The title is copyrighted by Guardian Life Insurance Company but was a good lead-in to my blog post.  How did they get such a common name copyrighted anyway?

Comments

Post a Comment

Popular posts from this blog

ARE YOU SATISFIED WITH THE FINANCIAL ADVICE YOU ARE RECEIVING?

Are you Satisfied with the Financial Advice you are Receiving? “If you can’t explain it simply, you don’t understand it well enough ” Albert Einstein How long are we going to subscribe to the typical investment advice on just building assets for retirement?   Is there a better way?   While we are talking about it, is investing only in stocks or stock funds really diversification?   When we have another stock market correction, will it only affect large-cap stocks? Small-cap ? Emerging markets? International markets?   Finally, should financial planners keep forecasting future results in their overly complex financial plans riddled with too many assumptions?   If you follow my blog, you will notice a common theme in my writing—typical financial investment advice has failed.   The baby boomer generation in retirement now validates the poor investment advice provided to investors in previous years.   What happened to the 401K?   Where a...
Read more
The Yale Endowment Model         The Yale endowment model incorporates the mean-variance approach as described in Modern Portfolio Theory (MPT) designed by Harry Markowitz and James Tobin ( Yale Investment Office, 2017).  Markowitz (1952) based his theory on the idea of minimizing investment risks within the investment portfolio by enhancing diversification strategies designed to optimize an investment portfolio given any level of risk. The Yale Endowment Model, using this method, has changed its mix of investments from nine-tenths in stocks, bonds, and cash to just one-tenth in recent years.  Currently, the Yale Endowment model uses an alternative investment mix for the bulk of their investments to include private equity, real estate, leveraged buyouts, venture capital, absolute returns, foreign equity, domestic equity, fixed income, and cash and it’s equivalent.  Endowment models in general usually have a long-term investment horizon, but t...
Read more
"My thought of the day" Real-Time Forecasting How valuable is a financial plan?  Most financial planners do a good job collecting data to build a financial plan for their clients.  However, planners fall short when they start forecasting future results. For instance, planners typically make several assumptions about market returns, inflation, taxes, and spending habits.  Of course, this is what I call hokey-pokey.  The English Oxford Dictionary defines hokey-pokey as: "(the hokey-pokey)   US  A group dance performed in a circle with a synchronized shaking of the limbs in turn, accompanied by a simple song". If we think about this logically, it is virtually impossible to predict future results with so many variables.  I would venture to say my college algebra professor cannot even solve this equation!  Sorry, Dr. Baker.  So, why do so many financial planners still use this method to build a financial plan for their clients?  I am...
Read more