Tom Hurford

Rigorous education, preparation, planning and practice are the keys to long term financial freedom

In my experience the best professional boat captains educate their crew relentlessly, they spend time with them on “what-if” scenarios, because some failures can be deadly serious. If the fancy electronic navigation gear fails, there are paper charts compasses and sextants, and people who know how to use them. There are manuals and replacement parts where practical. There are people aboard skilled at repairing things, and people who know extensive first aid. There are provisions aboard for twice the expected trip duration, and ways to fish and desalinate water. There is always a long sequence of backup plans to get the boat and everybody aboard safely back to shore. So, when out there, as conditions change at sea, we are rigorously examining the implications. Being able to admit that “Plan A” has broken down exhibits both courage and prudence. I think I always knew that but the lesson has been reinforced by great professional skippers.

Being able to admit that “Plan A” has broken down exhibits both courage and prudence.

Investing and financial planning are the same way. The world economy is vast, complex and a chaotic system, that is generally comprehensible, it functions according to basic laws, like the sea. Also, like the sea, an unexpected event across the world can create local storms that were impossible to predict very far in advance. We don’t have any way to predict or influence changing tax codes, or other laws that might influence a client’s plan. We favor simplicity, because complex things break more easily, but sometimes you need complex tools to accomplish your goals, because the simpler ones don’t work as well. Even in those cases you need a fallback plan to be able to adjust. Just like in sailing, small investment and planning mistakes can successively limit your options, leaving you with fewer or worse choices later. Our clients are like sailing crew, we spend time educating them, and preparing them. Having a succession of back-up plans is the hallmark of prudence, and an advisor needs to be asking the “what-if” questions and be intentional and serious about understanding the answers. If the fancy financial simulations that we have available don’t seem to be getting us the nuanced answers we need, we need to be able to do the work the old-fashioned way, with a spreadsheet or a yellow legal pad. We need to have people around us that are subject matter experts for areas where we aren’t experienced enough to help our clients the way they deserve to be helped.