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Fortitude Financial Planning

Simple is Good

Posted: 31/07/20 by Fortitude Financial Planning

William of Ockham was an English Franciscan friar who lived between 1287 and 1347. He was an influential theologian and philosopher who is best known for developing the principle known as “Ockham’s Razor” (or Occam’s razor). The principle attributed to Friar William is also described as the law of parsimony – “plurality must never be posited without necessity” – however, the more common interpretation of the principle is that “the simplest explanation is usually the correct one”.

Ockham is not the only philosopher to ascribe to this view. Many others regard simplicity as a good principle, for example, Ptolemy said, “We consider it a good principle to explain the phenomena by the simplest hypothesis possible” and a broad range of philosophers and scientists (including Thomas Aquinas, Isaac Newton, Bertrand Russell, and Albert Einstein) support this view.

That is all very interesting, but what has it got to do with Financial Planning?

In our modern world complexity appears to be the new normal.

Financial matters, particularly investment, pension, and tax planning, can be extraordinarily complicated. This complexity is extremely intimidating to the average person.

Last week Chris met Carol for the first time. Her husband died recently and she is about to inherit a significant sum of money.

However his financial arrangements were not straight-forward; there are some unusual investment structures, which means that the tax position is complicated. Carol is an intelligent woman, but she was at a loss when it comes to understanding her financial position. As a result, she was feeling very vulnerable.

Carol told Chris that she wants:

1. Reassurance that she will have enough money when the estate is finally settled

2. Clarity about how that money should be invested in the future

3. Confidence that she has chosen to work with an adviser who she can trust to deliver that clarity and reassurance and act in her best interests

By following our Financial Planning process Chris was able to demonstrate to Carol, by developing a bespoke Lifetime Cashflow Model, that she would indeed have enough money.

He described the simple principles which Fortitude believe will make achieving the returns she requires more likely:

Rather than using the sort of complex investment products which enticed her husband with promises of higher than average returns, Fortitude advocates a simpler, more transparent and low-cost portfolio which is designed to generate the returns that Carol needs with a level of risk that she understands and that is acceptable to her.

• Risk and return are closely related

• Diversification is the best way of managing that risk; no-one can predict the future so don’t put all your eggs in the same basket. Investment charges can have a serious impact on your returns, so it is important to manage these costs.

Carol likes the fact that Fortitude follow a clearly defined process that is focused on her needs. She can see that we have a joined-up way of thinking about investment and that gives her the confidence to trust our advice. Most of all she appreciates the fact that we will continue to meet with her regularly to review her plan and ensure that she remains on track.

Like William of Ockham we believe that the simplest explanation is usually the best explanation and we try our best to apply that principle.

Do give Fortitude a call if you would like some clarity about your financial position.

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