Tuesday, April 18, 2006

The Economic Aspects Of Financial Planning

Financial planning itself is a very slippery subject - trying to slide it successfully into the protean aspects of any economic model is often a futile effort.

Of course we can pretend it works, talk about various financial aspects of our projections, and make some pretty graphs.

I don't remember which economist said a truth that went something like the following "
All economic models are false - but some are useful."

If your base assumptions are false, each level of abstraction built upon them becomes more ephemeral. On top of this loose structure of shifting sand we are then expected to commence financial planning.

We can assume that inflation will be low, that the stock market will grow at 8% per year, and the dollar will remain stable. We could possibly be wrong on all counts - although it might be useful as an exercise.

tomorrow is an unknown.

Not only can no one predict the future, we don't understand the present – and there isn't even any certainty about the past. – Harry Browne


Therefore the economic aspects of financial planning are also an unknown.

To pretend we know the future is dangerous and leads to complacency.

Far better than considering the economic aspects of financial planning is too consider the current economic climate and cautiously speculate. Keep that fear of loss as a sharp pain.

If you are not worried - you are in danger.

Remember the standard speculation rule:
Keep your losses small - let your profits run.

Leave the Economic Aspects Of Financial Planning to the financial news and to investment focused magazine articles.

The pretty graphs and accompanying projections will still be impressive - the long term conclusions will be very dangerous.


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