The Power of a Simple Plan

A couple of years ago my wife dragged me along to the opening of an art exhibition.

Dutifully, I stood there with a glass of bubbly in one hand and a quizzical look in the other. I felt as out of place as a sober dude on a dancefloor.

Worse, out of the corner of my eye I noticed a woman — and what I assumed was her teenage son — gawking at me.

I caught the kid’s eye and he approached me.

“You’re the Barefoot Investor, right?”

“Yes”, I replied.

He looked back over to his mother and nodded.

“Would you mind if my mum came over and spoke to you? She doesn’t want to bother you, but …”

“Sure, I’m happy to help”, I smiled.

This happens to me quite a bit. I’m like Kim Kardashian, only people don’t want to take a selfie with me — they just want advice on what to do with their Self Managed Super Fund.

She was a well-dressed woman in her 40s. She approached me nervously with a smile on her face, but as she got closer I saw tears in her eyes.

Then she said …

“Two years ago I lost my husband. I was left with young kids. I didn’t know what to do. I was alone and I was really scared. I wrote to you one night, thinking you must get thousands of letters, and not expecting a reply.

But you did reply. And you gave me the advice I needed. You don’t know how much I needed to hear it at that point in my life. You can’t imagine how much you helped me”, she said with tears running down her cheeks.

So what amazing advice did I give her that produced such an emotional reaction?

Nothing.

That’s right. I (basically) told her to do nothing.

She’d just received a very large life insurance payout and was overwhelmed with what to do. That’s totally normal behaviour by the way. It’s called the ‘paradox of choice’ — an unlimited number of choices makes the decision process harder, not easier.

And her grief only compounded her indecision.

The advice I gave her simply allowed her to release the pressure value.

I told her to pay off her mortgage (she was adamant that she wanted to stay in the family home), take her kids on a holiday, keep enough money on hand so she didn’t have to worry or work full time for the next year, and then lock the rest of the money up in a 12-month term deposit. That way she could spend the next 12 months grieving and caring for her kids.

In other words, keep it simple. And that’s good advice for you too. Let me explain.

We Don’t Know When We’re Getting Bad Advice

A major study conducted earlier in the year by the University of Sydney found that most Australians are unable to tell the difference between good and bad financial advice.

The researchers produced videos of a number of advisors — some providing good advice and others providing bad financial advice. The videos were then shown to groups of people who were asked to identify which of the advisors they would trust.

The research found that trust in the advisors was easily manipulated. “We were able to show that if an advisor gave good advice on an easy topic (like paying off a credit card) that this formed a good impression in the mind of the client, so they continued to trust that advisor even when they gave them bad advice down the track”, said Professor Susan Thorp who led the study.

We saw this in action this week.

The latest financial planning scandal reported by ASIC — and there’s been a long line of them — revealed that almost 200,000 clients have collectively paid for $178 million worth of ‘advice’ that they never actually received. In other words, those 200,000 people were so bamboozled with bulldust that they didn’t even know what they were being charged for.

Keep it Simple

So if the average person can’t tell whether they’re receiving bad advice, what’s the solution?

You should do what the widow did.

When you are presented with advice you do a gut check.

The simple plan of eliminating her debts and focussing on her family gave her an enormous sense of relief, a feeling of control over her life and best of all — it was one she could understand.

Here’s the rub: when you’re making a bad financial decision you almost never feel any of this.

If you don’t understand something — or you are a bit hazy on the detail — you should keep asking questions until the fog clears. Over the years I learned that whenever someone tries to makes things appear complicated it generally means they’re trying to sell you something.

I’ve helped thousands of people with their money over the past fifteen years, and the one overriding lesson is the power in keeping things simple.
You’ll never go wrong if you follow this advice:

First, saving is the bedrock of all true wealth and security.

Second, debt always adds risk. It always makes your life more complicated. If you can avoid it you should.

Third, the only thing you can control with your investments is the fees you pay. A wealth of research proves that the more your wealth manager takes the less you make.

And the final clincher is this: no one cares more about your money and your family than you do.

Tread Your Own Path!