I already know
What the future won’t be like:
My expectations

Imagine going back to the late 1980s. This was before most people had ever sent an email. It was before nearly everyone had a supercomputer in their pocket. Now imagine trying to explain NFTs to someone back then.

Imagine going back to the late 1960s for a visit to NASA. Imagine trying to explain smartphones to the engineers who were using computers that cost as much as a mansion and took up about as much space.

What does any of this have to do with your money?

It is extremely easy and alluring to look at the information we have right in front of us and assume it is sufficient to plot a course for the future. However, all information is inherently incomplete.

Some of the brightest minds in the world dedicate themselves to predicting the price fluctuations of the stock market. Decades of geniuses creating more and more sophisticated technology to help investors outperform a simple index. Yet the overwhelming majority fail to do so. It is simply impossible to anticipate which factors will be the critical elements in a new breakthrough or crash. At least for now.

Think of it this way: the future is a variable on one side of an equation. 1 + 1 = x. Easy. X=2. But what if the equation is 1 + x = y? Incomplete data on both sides of the equation leaves us with an infinite set of possibilities as to what either “x” or “y” could be. All we know is “1”, which is where you are, right this minute.

If I don’t know how much college is going to cost in 20 years, how do I know how much I should be saving in a 529? If I don’t know what my health will be like in my later years, how do I know how much I should be saving for long term care expenses? If I don’t know what tax rates will be like in 30 years, how do I know whether to use a traditional or Roth 401k?

The easy conclusion is that financial plans are useless. Save as much as you can and use index funds. Done.

This represents a misunderstanding of what a financial plan is.

A real financial plan assumes uncertainty and unpredictability. This kind of financial plan is a box of tools to help navigate unknowable conditions tomorrow that you can’t dream of today.

The tools you need in your financial toolbox at age 20 are going to be much different from the tools you will want to have at age 50, which are also different from the tools you’ll want to have at age 80. We don’t yet know what problems 150-year-olds will wrestle with.

The tools that will be opportunistic in a stable, growing economy might not work so well when you need to endure high inflation and destabilizing international conflicts.

When the unexpected happens – which it absolutely will – your plan will need a refresh. By assuming that the future is unknowable from the start, you will build a plan with a greater ability to pivot from a disadvantageous situation to a better one.

Financial plans should not, ideally, be a hard and fast roadmap into a clear future. No such thing exists. A financial plan should be a toolbox that gives you the capacity to live life on your terms regardless of what unknowable, uncontrollable events are waiting for you in the years to come.