In recent days, a local meteorologist, James Spann, discussed that magical winter word for those of us in the South – SNOW. Mr. Spann has a deep knowledge of both weather and local landmarks, a passion for his material, and the ability to convey his subject matter. While reading one of his recent posts about the possibility of snow, it came to the surface that there are some similarities between the role of a meteorologist and a financial advisor.
In both, predictions are made about future events. We look at multiple data points and come up with a probability that a particular event might happen or be successful. For the meteorologist, they predict the likelihood of snow, rain, severe weather, etc. For the financial advisor, we are tasked with predicting the likelihood of a retirement that fits your idea of success. In both roles, the goal is to point out any potential factors that could influence a change in the outcome.
Recently, Mr. Spann noted two key factors meteorologists consider which are relevant in our work as financial advisors as well.
First, the various data inputs create a multitude of possible outcomes. Because snow is rare for us in the South (and we envision a beautiful Thomas Kincaid blanket of snow instead of Snowmaggedon), we pay close attention to any output that predicts snow for our area. But as Spann points out, that is only one model run of several they review. Ultimately, he notes, it is best to use an ensemble of the data. This antidote is where he speaks our language. We, too, are reviewing future events such as your retirement. As with the weather, there are many variables to consider, and the range of possibilities is quite broad. Using a bell curve as our guide, we could focus on the tails with a less than 10% chance of happening, but the best course is to consider what the models show on average.
Spann’s second component is that he is always quick to relay the greater possibility of change the further away you are from the expected event. This idea is applicable in all areas of our lives. We may plan to attend a birthday party a week in advance, but then a stomach bug hits the day before. Throughout your career, you may experience changes to your salary and expenses, and numerous life events will take place, which may change the data. The closer you are to your retirement date, the better any projections will be because more of the data inputs are certain and less subject to change.
While there are more technical ways a meteorologist and a financial advisor are similar, we also share a similar passion – having a plan in place. Living in Alabama, we learn early in life to pay attention during tornado season. Our meteorologists give us early warnings when the dynamics are favorable for severe weather, but they cannot predict hours ahead of the exact location where a tornado will occur. Rather, they teach us to prepare ourselves in advance. We keep weather radios, we know our safe place, and when the time comes, we “respect the polygon.” In the same manner, we work with you to prepare a financial plan for life’s changes to the forecast. Bear markets, health events, and other surprises are bound to happen, and having a plan in place prior to the event helps you navigate it.