Financial Media and the Myth of the “Overvalued” Stock Market

May 12, 2014

In last months’ newsletter I wrote about rising valuations on stocks which typically means rising volatility.  When the difference between the price of a stock and its true value declines (measured as a rising Price/Earnings ratio) the volatility of stock prices can increase. Nervous investors and traders find it harder to predict where stock prices are going in the short term – (which is a dumb thing to try to do anyway) and trade more frequently.

The Financial Media, always looking for or attempting to create some drama to report on, begin to speak about the “Overvalued” stock market.  This short article from our friend Nick Murray dispels this myth (at least from a US stock market perspective).

“Attempts to correct irrational investor behavior through education have proved to be futile. The belief that investors will make prudent decisions after education and disclosure has been totally discredited. Instead of teaching, financial professionals should look to implement practices that influence the investor’s focus and expectations in ways that lead to more prudent investment decisions.” “Explicit, reasonable expectations are best set by agreeing on a goal that consists of a use of funds, a dollar amount and a date. Progress to meeting that goal is then tracked, showing how much the investor is ahead or behind the established goal…Linking the investment to a personal desire keeps the attention focused on that desire and avoids the distraction of market volatility that leads to bad investment decisions.” —Dalbar, in the introduction to its 20th annual Quantitative Analysis of Investor Behavior

What is Financial Life Planning?

Financial Life Planning involves a broadening of the financial conversation from just financial management to include life management.

George Kinder (Financial Life Planner) puts it this way: “People don’t have financial goals: they have life goals that require financial resources to accomplish. It is in the learning of these life goals that we discover our dreams of freedom; our most exciting vision for the life we want to live”.

Life planning is really a process which supports us in rediscovering “who” we are (core personal values) and “what we really want most” in life (life vision). From here a stronger and much more meaningful connection can be made between “who we are” with “what we have and what we want to do”.

Financial Planning is more effective if it follows Life Planning.

(You need to know where you are going before you buy a ticket!)

It has been recognized that achieving financial success is much more than having information and knowledge about money and investments. Our assumptions, habits and our relationships around money also play a huge role in both our personal and financial success.

In my experience, the process of “life” planning creates the greatest possibility for financial success, because it sets in motion the ability for us to shift our perspectives around our money and to take huge steps towards what we really want most.

What is my role as a Financial Life Planner?

As a Financial Life Planner, I see your life is the axis around which financial discussions revolve and evolve.  I assume the role of facilitator, educator, guide and partner. This often requires a “shift” in how you see me and my services as your advisor.

As a Financial Life Planner, success hinges on discovering what life transitions you are currently experiencing and anticipate experiencing in the future. It also requires partnering with you to create a unique life vision based on your personal values.

8 Key Roles of a Financial Life Planner:

  1. To explore what money represents to you.
  2. To introduce “new perspectives” for you to try on
  3. To initiate awareness regarding the non-financial aspects of your financial success
  4. To have a network of professionals to whom  I can confidently refer you
  5. To anticipate life transitions and to make financial preparations for those transitions
  6. To assist you in the process of establishing financial goals that facilitate your life goals
  7. To define both the tangibles and intangibles that you expect your financial assets to provide
  8. To create the “space and process” you need to clarify your core values and create powerful Visions of your life.

Eight Tenets of Financial Life Planning (FLP)

Summarized from Your Clients for Life: The Definitive Guide to Becoming a Successful Financial Life Planner, by Mitch Anthony, co-authored by Barry LaValley and Carol Anderson

  1. Each person’s life is a continuum of unique experiences.
  2. Life is about change and the purpose of FLP is to identify and facilitate successful transitions.
  3. Each person’s life course is unique. Today, either by chance or by choice, most individuals are following an unconventional life course.
  4. An adult’s orientation to learning is life-centered. To engage adults in understanding a product, service or process, they must see the relevancy to their own lives.
  5. Adults have a strong need to be self-directing. FLP seeks to empower individuals to make wise financial decisions and to develop a sense of mastery in this area of life.
  6. Adults desire balance and meaning in their lives. FLP supports individuals in clarifying vision and goals in all areas of life and to design a financial strategy to support those goals.
  7. Each person’s internal compass, their values & priorities, guide their decisions in life.  FLP supports the client in identifying their values and priorities and then guides them in making financial decisions that are in sync with those values and priorities.
  8. Successful communication and education is based on asking the right questions. Good communication is more about listening than talking. The goal of FLP is to really get to know the individual client in order to tailor solutions that are unique to the individual.