Photo: PublicDomainPictures. Source: Pixabay
I remember how it felt to hold my first baby. All thoughts about myself and my personal plans evaporated; all I could think about was what the world would be like for my new child.
It’s natural to plan, to wonder what the future holds. We make plans for work, leisure, and how to deal with our everyday lives, and it’s rare to look more than a few years ahead. But when we have children, our perspective changes. Suddenly, we think in terms of decades – considering houses, schools, college – where we can live, and how to pay for it.
Planning is a good discipline. It forces us to think about our goals, about what we want in our lives, and about what resources we need to get there. When make our objectives and limitations clear, we’re much more likely to get where we want to.
But there’s a problem with our planning. It tends to be deterministic. We think in terms of lines and destinations, not in probabilities and bell curves. We look at a weather report and say, “Looks like a clear day tomorrow,” forgetting that there’s a 20% chance of rain. Twenty percent, though, means that one day out of five will be rainy, despite the sunshine and pleasant breeze we see outside right now.
26 different 10-year S&P 500 Predictions from 2017, all of them wrong. Source: Alephblog
People propose, fortune disposes. We don’t know the future. That doesn’t mean that anything can happen: we’re not likely to see a snowstorm in August in New England. But we need to make our plans probabilistically, with contingencies for rain and wind, as well as pleasant weather. That’s why I carry both sunscreen and an umbrella in my backpack.
Dwight D. Eisenhower once said that plans are nothing, planning is everything. When I held my newborn, I had no idea that the Berlin Wall would fall, we’d have an S&L crisis, an internet boom-and-bust, a big data revolution, a financial crisis, or any of the specific events of the last 30 years. But I knew I needed to work and save and prepare. Because, as Eisenhower also noted, preparation is performance.
Douglas R. Tengdin, CFA
Charter Trust Company
“The Best Trust Company in New England”