The scourge of events
Written by Ben Bennett on May 25, 2014.
In response to a journalist’s question about what could potentially derail his government, British Prime Minister Harold Macmillan is reputed to have replied: “events, dear boy, events.” Ultimately it proved to be a self-fulfilling prophecy as a few years later the government became embroiled in the Profumo scandal in which a leading member of the Cabinet was caught in a liaison with a topless showgirl. Macmillan resigned a few months later and the government was voted out of office the following year. Such is the scourge of events.
I suspect it is something that virtually all of us have had some experience with over the course of our lives. There you are cruising along in life, everything going swimmingly, and all of a sudden the wheels come off and you are brought crashing down to earth.
Professionally speaking the ‘events effect’ is something that can wreak havoc with even the best laid financial plan. As a financial planner it is my job to help clients navigate a smooth path from their current position to their objectives. However, no matter how meticulous and conscientious my strategy, it can all be thrown into utter chaos by the unforeseen.
Clients can lose their jobs, fall sick, get divorced or experience a myriad of other personal issues which can have a major impact on their finances. Equally, economies can plummet, markets can crash and growth rates can slow to a crawl—all of which can upset financial projections which were perfectly reasonable at the time they were set down. No one, for example, saw the Lehman Brothers’ bank collapse coming in 2008. It sent the markets into freefall, upset the entire financial apple cart and had a highly disruptive effect on the retirement plans of a large number of people worldwide.
Financial planners have no more access to crystal balls than anyone else. We can only work with known variables: the client’s current financial position, their objectives and a reasoned expectation of investment returns. Even erring on the side of caution and building some bias into a plan to compensate the possible effects of an unforeseen event may still not be enough to counteract a major curve-ball in someone’s personal life or a complete meltdown of the financial system.
My advice is that people help themselves by saving what they can, when they can. The best protection against the unexpected is to accumulate a bigger pot of savings which will provide the resources to weather an event storm. That’s not to say you have to squirrel away every last penny, but if you have extra cash left at the end of the month consider using some of it to top up your savings plan rather than blow it all on some momentary pleasures.
Protection can also come in the form of specialist insurance designed specifically to guard against the unexpected. You should also protect your wealth with appropriate insurance. Life insurance, critical illness, accident and disability cover and income protection policies can all help you guard you and your family against the kind of risks that can derail the best laid plans. At the very least, keep your partner sweet, look after your health and keep your fingers well and truly crossed.