09 August, 2009

A guide in Tough times

Picture this. You are trekking in the Himalayas. The biting cold and breathtaking scenery are exhilarating and the atmosphere within the trekking group is relaxed and serene. And then it happens—an avalanche. It lasts just a few minutes, and immediately after the noise, there is an eerie silence and nothing to be seen for miles but sparkling white. Your group is shaken but manages to pull together. You find that you are lost, with no idea of where to go.
Your guide, a native of the parts, manages to calm the group. He surveys the area, looks around at the peaks and the sky and instructs the group to walk behind him. In a couple of hours, he leads you to the base camp. Without the guide, you would have been lost in the wilderness.
A financial planner is a bit like that guide—helping you achieve your goals through the rough and tumble of life. When times are good, any advice will work. Like they say, all boats float when the tide is high. It is when times are uncertain that you really feel the need for expert, professional advice. A planner can help ensure that you don’t get carried away by swirling rumours and doomsday predictions that abound at times like these.
Because a financial planner is not focused on investments alone, he can help you achieve your life goals through holistic financial management. In times of upheavals, plans may have to be reworked to get them back on track. It might surprise you to know that in times of massive uncertainty, I have found it better to take no action than to act in haste. That’s because financial planning is about achieving long-term goals and not about making short-term profits. In fact, when the market is going through turmoil, your financial planner might even recommend a new action to take long-term advantage of such situations.
But what about adverse situations in life, such as job loss or the death of a family member? Does that warrant a break in financial planning? No, the changed situation may warrant a changed response, not the abandonment of financial planning. A financial planner can actually add tremendous value in times of distress. Assume that one of my clients, Gopal, has lost his job. He is worried about his EMIs and bills. As his financial planner, I would try to shore up his finances. I have already ensured that there is a three-month expense liquidity fund.
Now, the task will be to liquidate assets to take his liquidity to beyond six months. Once this strategy is in place, the next course of action would be to find ways of bringing the plan back on track. For instance, Gopal will need to revisit some of his goals, and remove those that have become irrelevant or unattainable in the current situation. Appropriate course correction will also be made to keep his plan viable to suit his changed situation. If these are done, Gopal will just have to worry about finding his next job, not about the state of his finances.
During times of personal turmoil, a financial planner can be a stabilising influence. Since the planner is not emotionally involved, he is able to offer clear-sighted solutions. All of which is to say that a financial planner assumes more importance when times are uncertain—whether in the general economy or in your life.

Published in Money Today 3 August, 2009 issue

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