{"id":258960,"date":"2025-05-27T02:21:39","date_gmt":"2025-05-27T02:21:39","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/investing\/almost-every-financial-planning-decision-requires-judgment-oblivious-investor\/"},"modified":"2025-05-27T02:21:39","modified_gmt":"2025-05-27T02:21:39","slug":"almost-every-financial-planning-decision-requires-judgment-oblivious-investor","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=258960","title":{"rendered":"Almost Every Financial Planning Decision Requires Judgment \u2014 Oblivious Investor"},"content":{"rendered":"


\n<\/p>\n

\n

We can use the latest and greatest financial planning software.<\/p>\n

We can have encyclopedic knowledge of all of the relevant tax and Social Security rules.<\/p>\n

We can know all the details of exactly how all the available financial products work.<\/p>\n

We can have access to detailed historical data of 100+ years of investment returns.<\/p>\n

We can have a thorough understanding of all the pros and cons of each option.<\/p>\n

But in the end, even with all of the above, almost every major personal finance decision will still be a judgment call.<\/p>\n

I often see people on personal finance forums who seem to be operating on the assumption that they can follow a path of math -> research -> math -> research -> certainty. If they haven\u2019t yet arrived at certainty, well then they probably just need to do a little bit more math (or research!). Perhaps a new piece of software will get them there.<\/p>\n

I don\u2019t mean to disparage math, research, or financial planning software. After all, I\u2019m a CPA who spends much of my time looking at Excel, the Internal Revenue Code, and financial planning software. These things are<\/em> helpful!<\/p>\n

But there\u2019s always uncertainty. We don\u2019t know how long you\u2019ll live. We don\u2019t know what investment returns you\u2019ll get over any particular period. We don\u2019t know the details of future tax legislation or when such legislation will be passed. We don\u2019t know exactly when you\u2019ll have to replace your car, replace your roof, pay for a surgery, or stop working because you just can\u2019t handle it while you\u2019re going through chemotherapy.<\/p>\n

Life has uncertainty. Lots<\/em> of it.<\/p>\n

The point of financial planning isn\u2019t to remove the uncertainty. That\u2019s not possible. The point of financial planning is to help us recognize<\/em> and accept<\/em> the uncertainty and make informed decisions in light of that uncertainty<\/em>.<\/p>\n

I\u2019ve often written that there\u2019s no perfect portfolio, but there are countless \u201cperfectly fine\u201d portfolios. A similar concept applies to most financial planning decisions.<\/p>\n

For instance, if you\u2019re recently retired, there\u2019s a given level of spending that\u2019s pretty clearly too high, and another level of spending that\u2019s pretty clearly lower than is necessary from any risk-reduction standpoint. But there\u2019s still usually going to be a big<\/em> range of spending levels in between that could be reasonable. And what level to select will ultimately be a judgement call depending on various things such as how you feel about leaving a large bequest and how you feel about cutting spending significantly a few years into the future if that becomes necessary.<\/p>\n

The same thing is typically true for things like Roth conversion planning. We can often say something like \u201cConversions through the 32% or higher brackets wouldn\u2019t be a good idea. But it could be reasonable to stop at the top of the 22% bracket or top of the 24% bracket.\u201d<\/p>\n

There\u2019s always going to be uncertainty, and so there are usually going to be multiple approaches to any given question that are reasonable.<\/p>\n

At some point, we just have to decide.<\/p>\n<\/div>\n

“A wonderful book that tells its readers, with simple logical explanations, our Boglehead Philosophy for successful investing.”
\n– Taylor Larimore, author of <\/p>\n\n","protected":false},"excerpt":{"rendered":"

We can use the latest and greatest financial planning software. We can have encyclopedic knowledge of all of the relevant tax and Social Security rules. We can know all the details of exactly how all the available financial products work. We can have access to detailed historical data of 100+ years of investment returns. 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