Why the investment industry’s process of creating financial plans is backward

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A diligently composed comprehensive financial plan involves a deep dive into both the quantitative realities and goals, but also the larger qualitative aspects of who the client is. Once completed, the process leaves the advisor with a deep understanding of the client’s financial circumstances as well as who they are as people.

Comprehensive financial plans with stress tests like market corrections and Monte Carlo simulations are arguably the most comprehensive way of determining a client’s capacity for risk. The present value of future earnings and their volatility should be factored into any portfolio recommendation and, again, speak to a client’s risk capacity.

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