Five Financial Planning Moves for Uncertain Times

“In a changing world, expertise quickly becomes obsolete without humility and curiosity. Expertise is what you know. Humility is knowing what you don’t know. Curiosity is how much you want to learn. Expertise yields insight today. Humility and curiosity fuel growth tomorrow.” – Adam Grant  

If I could sum up the collective wisdom of all the economic outlooks I have read over the last month, it’s that we are very certain that we don’t know what will happen in the coming year. Market uncertainty is unpleasant because it is typically accompanied by volatility. When information constantly shifts, investors often respond by trading more to incorporate the new information. This is compounded by the fact that more and more technology is incorporated into trading decisions than ever before. What results is a choppier market that can wear on the nerves of even the most disciplined long-term investor.  

Beyond its role in financial markets, however, uncertainty is a very core part of the human experience. Life is uncertain. Much like the economic outlooks I’ve been reading, we can make educated guesses about where we’ll be six months, a year, or even five years from now. And much like those outlooks, we base those guesses on the information we have. Do we expect to change jobs at some point? Are we planning to retire? Have we met someone special who might change our trajectory, or have we welcomed a new child who has scattered all our well-laid plans? (I have always been an avid planner, but parenthood has laid many of my well-intentioned spreadsheets to waste!). Still, we don’t know with 100% certainty where life will take us. We will encounter numerous surprises before the journey is over, so it seems in our best interest to have some tools handy for encountering, dare I even say, embracing uncertainty.  

1. Embrace Humility in Financial Decision-Making

Uncertainty is in good company with humility.

As Adam Grant eloquently stated, “Humility is knowing what you don’t know.” It’s important to be aware of what we don’t know because it keeps us from being overconfident in something that’s not a sure thing (and very little in life is a sure thing). Numerous stories exist of investors ruined by the intensity of their convictions in a less-than-certain outcome. Obviously, we can’t live conviction-less. We all need structure and a general idea of where we’re going and why, but we also need to acknowledge what we don’t know and ask for help when we need it.   

When Matt and I review investment ideas together, one of the questions we often ask each other is, “how do we think this breaks?” Typically, we have a good idea of where it succeeds — after all, we wouldn’t be considering it if we didn’t think it had a purpose. That said, we also need to understand our risks, and those typically lie in what we don’t know. This mindset is central to thoughtful investment risk management. Acknowledging this reality is a crucial part of our idea-evaluation process. 

2. Assign Likelihoods Instead of Guessing

Of course, we can’t just say we don’t know, throw our hands up in the air, and walk away. We also have to make decisions in the face of uncertainty. To do so, we turn our humility to curiosity, and we try to learn what we don’t know. 

We can’t know the future, but we can contemplate all the various outcomes and then try to get a sense of how likely they are. In a financial planning or investing setting, this usually takes the form of probabilities. We list all the things that could happen, then assign likelihoods to those outcomes based on what we do know. Maybe there’s a 5% chance of this outcome, a 55% chance of that outcome, and a 40% chance of a third outcome. When we break uncertainty down into likelihoods, we empower ourselves to start making informed decisions, even if they’re imperfect. This is one way we bring structure to financial planning during uncertain times.  

3. Understand (and Mitigate) Investment Risk

One of the things we want to account for in the face of uncertainty is not just the likelihood of an outcome but also the significance of the consequences. A great example is how we approach investment risk management.

Just because the probability of an outcome is low doesn’t mean we should ignore it completely. What if the probability is low, but the outcome is really bad? Then we might want to explore what we can mitigate.   

This is why most of us have car and homeowners' insurance. The likelihood of me getting into a major car accident today is low. I am a decent driver and I have a clean driving record. But a major car accident has significant consequences. Medical expenses may arise, and the car(s) involved may need to be replaced. 

The likelihood of the event is small, but the consequences shouldn’t be ignored. So we buy insurance. We mitigate the uncertainty by paying someone else to bear it.  

The same principle applies to building a resilient financial plan.

4. Stress Test Your Financial Plan

One of the really neat things we can do in financial planning during uncertain times is to start a stress test. Financial planning means testing our portfolio under different scenarios. There is plenty of financial planning software out there that has this feature built in, but it’s all based on pretty basic mathematical concepts.   

Many of you have undergone the financial planning process with us and know that it ends with us looking at the probability of success for your plan. This is simply the percent of the total random market scenarios run in which your portfolio doesn’t run out of money. 

We have no way of knowing how well your portfolio will perform over the next 20, 30, or 40+ years. But we can get a sense of how robust it is by stress testing it against a sampling of good, bad, mediocre, and everything in between outcomes. 

5. Live Well Now

I love math, especially statistics. I love that you can use samples of data to build out predictive models. But I have also had to learn over the years that even all of the math in the world can’t bring us perfect certainty. Our software will offer the highest success rate at 99% because the software engineers know that there will always be a sliver of the unknown.   

And that unknown is uncomfortable! It keeps us up at night, circling our minds with questions of “what if?” But our panic about the unknowable future comes at the expense of missing out on right now, which is, ironically, the antidote. 

So the last bullet point of wisdom is to be here now — to embrace the certainty of being alive in this exact moment. 

It’s why we say things like “if you don’t fly first class, then your kids will.” Because we also know that while we don’t know the future, we know that you will miss out on living well if you can’t learn to live in the present and enjoy it for what it is.   

True financial planning isn’t just about surviving an uncertain financial future. It’s about building a life that allows you to live meaningfully today.

If the uncertainty of the moment has you on edge financially, we invite you to reach out for a casual conversation. We’d love to explore the probabilities and outcomes, and stress test your financial situation to help you find greater peace of mind with the ultimate goal of helping you live well now.