It’s often said that the secret of success in any endeavour is “stickability,” your capacity for staying committed to a goal. But success also depends on having goals you can stick with. Managing that tension is what an advisor does.
Inspired by the impressive weight loss of a work colleague, a portly middle-aged man decides to copy the program that gave his friend such results. It’s a crushing regime, involving zero carbs, 5 am sprint sessions and mountain biking. You can guess what happened. The aspiring dieter lasted about a week on the program before throwing it all in and returning to sedentary life, donuts and beer.
It may have been better for this individual to get some advice first, starting slowly, swapping the mountain biking for brisk walks around the block and dumping the zero carb diet for light beer. He may not have shed weight as quickly as his friend, but he probably would have had a better chance of sticking with the plan in the longer term.
Similar principles apply with investment. You envy acquaintances who seem to have succeeded with high-risk strategies, but that doesn’t necessarily mean those are right for you. And in any case, their barbecue talk may leave out key information, like how they sit up all night watching the market and worrying.
Just as the want-to-be weight loser can’t live with 5 am sprints, not everyone can stick with highly volatile investments that keep them up at night or cause them to constantly second-guess themselves. And few people can do it without a trainer.
On the other hand, reaching a long-term goal like losing weight or building wealth requires accepting the possibility of pain and uncertainty in the short-term.
The trick is finding the right balance between your desire to satisfy your long-term aspirations and your ability to live with the discomfort in the here and now. Quite often, this tension can be managed through compromise. In other words, you can accept some temporary anxiety or you can moderate your goals.
The point is you have choices. And the role of a financial advisor is to help you understand what they are. So, for example, an advisor can assist you in clarifying your goals and setting priorities. Which is more important—the family holiday or the education fund? Perhaps you can do both by swapping the overseas resort for a camping holiday without dipping into the education fund.
It’s just like a personal trainer who would be unlikely to recommend that an out-of-shape sedentary business executive start running marathons or try to halve his body weight in six months. The job of the trainer, or an advisor, is to manage your expectations and ensure the goals you are pursuing work with everything else you want to achieve in your life.
An advisor can also assess your capacity for taking risk. Not all of us are thrill seekers. And that’s perfectly OK. A portfolio that’s right for one person may be all wrong
for another. That’s because each individual’s circumstances, risk appetites and goals are different. A financial plan shouldn’t be a cookie-cutter approach.
A third contribution an advisor can make is to help you manage through change. Our lives are not static. We changejobs, our incomes evolve, we take on new responsibilities like children and mortgages, we deal with aging parents, we move cities and countries. Nothing stays the same, and a financial plan shouldn’t either.
So not only do different people have different goals, but each person’s own goals evolve in unique ways. Reaching those goals requires a detailed and realistic plan, plus a commitment to stay with it. Some people may be up for the triathlon when they’re young and fit. But in later years, they might just need a more conservative program of stretching and walking.
You can try doing this on your own, of course. But it makes it easier if you have someone to keep you focused, keep you disciplined and help you change course when the circumstances of life require it.
Now that’s stickability.
October 26, 2015
These materials have been prepared by Dimensional Fund Advisors Canada ULC, manager of the Dimensional funds. This information is provided for educational purposes only and should not be construed as investment advice or an offer of any security for sale. The information provided in this presentation has been compiled from sources believed to be reliable and current, but accuracy should be placed in the context of the underlying assumptions. Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. To obtain further information regarding the Dimensional funds, please visit ca.dimensional.com.
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