Ever been to a foreign place? Unfamiliar landscapes, languages and different cultures can make ordinary things disorienting and difficult to navigate. There seems to be two different philosophies embraced by those making a journey to a foreign place: 1) do-it-yourself - grab a map and plan the trip; or 2) outsource the trip – book a tour company or guide and let them handle the logistics.
Financial planning actually shares some of the same challenges and opportunities of foreign travel. Investing, taxes, insurance, college savings, social security, and estate planning…each of them has unique languages, rules, and regulations. Should you draft a map and start your journey? Do you need a guide with insider knowledge? The answer is yes to both! It’s not a trick question or a dialectic whereby one choice must be made in the absence of the other. Drafting a financial plan is the same as drafting a map that shows where you are today and where you intend to travel. The map is critical, but alone the map is not dynamic enough to activate financial goals. Consider this historical map of Michigan from 1819. Look at Lake Michigan’s shoreline. It’s straight and imprecise. Likewise, look at the relative size of Lake Superior. It doesn’t look anything like the largest of the Great Lakes.
A map provides a snapshot in time, some if it accurate and some only directionally. The same could be said about a financial plan made at a point in time. It is static and full of assumptions that require updated triangulation and recalibration.
So, what about the value of guides? In Stephen Ambrose’s book Undaunted Courage, I learned what it was like for Lewis and Clark as they traversed 8,000+ miles of unknown territory from St. Louis all the way to the Oregon coast and back. Their mission was, among other things, to find waterways that connected the Pacific Ocean to interior America. They were bound to fail had they not had trusted guides. A golden dollar coin from the U.S. Mint cemented Sacagawea as the most famous of the guides, but she was not alone. Guides from Native American tribes including the Mandans, Hidatsas, Shoshone, Salish, Nez Perce, Chinooks, and Clatsops all contributed to the success of the journey. Unequivocally, Lewis and Clark would not be part of history if it were not for their guides; they would have certainly perished.
Are the lessons of history that you will perish if you do not have a guide on your financial journey? Not exactly, but guides – or financial planners in the case of personal finance – provide the native knowledge that is critical for avoiding pitfalls and optimizing financial efficiencies and success. An excellent guide doesn’t know everything; however, they are good at utilizing resources surrounding them to determine which path is better. Excellent guides, like excellent financial planners, also know that each journey is different even if it seems similar. Customizing your logistics and matching them to your goals is what a financial planner does.
Only 1 in 3 Americans utilize registered financial advisors (i.e., financial planners). Not all financial advisors or planners provide the same value – some are better guides than others. Vanguard conducted a study illustrating that trained and skilled advisors can add about 3% in net value returns. Over the course of years, that type of guidance can translate to very large differences in financial outcomes.
Cheers to excellent guides, map in hand, who are present for life’s most important journeys…they can make a historical difference.