Pushing the Limits of Simplicity

By: Mark Stinson

…we all think we’re above-average investors, just like we all think we’re above-average drivers… -Jack Bogle

Author and financial advisor Carl Richards spoke at the National Association of Personal Financial Advisors (NAPFA) East Conference in Philadelphia in October 2013. I was excited to attend his presentation because I had read his book, The Behavior Gap, and found it to be enlightening about investing and financial planning.

The book is enlightening, not because it unveils new theories or is stuffed with number-crunching. Quite the opposite— it’s enlightening because it’s simple. Richards had taken a well-known industry study, and using nothing more than a Sharpie marker and a napkin (and his impressive creativity), turned it into a book.

Several studies have shown that investors consistently under-perform the market. Richards labels this “The Behavior Gap.”

My two favorite values in the BWFA Credo are “Be friendly, clear, concise, and complete,” and “Life gets complicated; simplify it.” Richards does these things in spades. His simple graphs are a visual embodiment of these values. In his keynote speech, he said, “I push the limits of simplicity.”

What is financial planning?

At the conference, Richards emphasized the role of financial planning in helping clients overcome The Behavior Gap. He asked us to ask our clients, “If you missed the [investment] benchmark and achieved your financial planning goals, or if you beat the benchmark and did not meet you financial planning goals—which would you prefer?”

When potential clients come into the office, they often ask us about performance. We tell them one of our jobs is to participate intelligently in the market. I tell them we like to hit singles and doubles, and we don’t try to hit home runs. If you can achieve your goals, why take more risk than you need?

Richards noted that when we ask clients what matters to them, they list items such as achieving goals, enjoying retirement, spending without worrying about every dollar, and providing for their families. Notice that beating the stock market is not on the list.

If you would like a copy of Carl Richards’ book, or if you would like to find out more about simplifying your life and achieving your financial goals, contact me at 410- 461-3900 or mstinson@bwfa.com.